austal limited | contents

2 Austal Limited | Contents

Contents Contents ....................................................................................................................................................................................................................... 2

Index to the notes to the financial statements .............................................................................................................................................. 3

Chairman ................................................................................................................................................................................................... 16

........................................................................................................................................................................ 18

Review of operations ............................................................................................................................................................................................. 21

..................................................................................................................................................................................................... 25

.................................................................................................................... 30

Remuneration report [audited].......................................................................................................................................................................... 31

Auditor independence .......................................................................................................................................................................................... 60

Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2020 ............. 61

Consolidated statement of financial position as at 30 June 2020 ..................................................................................................... 62

Consolidated statement of changes in equity for the year ended 30 June 2020 ......................................................................... 63

Consolidated statement of cash flows for the year ended 30 June 2020 ....................................................................................... 64

Notes to the consolidated financial statements ........................................................................................................................................ 65

......................................................................................................................................................................................... 132

Independent audit report to the members of Austal Limited .............................................................................................................. 133

Shareholder information ................................................................................................................................................................................... 139

Corporate governance statement and ESG report .................................................................................................................................. 140

Corporate directory ............................................................................................................................................................................................ 140

Austal Limited | Index to the notes to the financial statements 3

Index to the notes to the financial statements Basis of preparation ............................................................................................................................................................................................. 65

Current year performance ................................................................................................................................................................................. 72

Capital structure .................................................................................................................................................................................................... 92

Working capital....................................................................................................................................................................................................... 99

Infrastructure & other assets ......................................................................................................................................................................... 102

Other liabilities ....................................................................................................................................................................................................... 112

Financial risk management ............................................................................................................................................................................... 114

Unrecognised items ............................................................................................................................................................................................ 124

The Group, management and related parties ............................................................................................................................................ 127

4 Austal Limited | Annual Report 2020

Austal Limited | Annual Report 2020 5

16 Austal Limited |

Ch

Financial Year Highlights

Record earnings amid unprecedented global economic volatility.

Ongoing strong contribution from LCS and EPF programs in the USA and enhanced earnings from expanded commercial operations in Australasia.

Strong $4.3 billion order book to underpin business as Austal pursues vessel opportunities and invests in steel shipbuilding capability in USA.

Challenges presented by COVID-19 well navigated, with a strong team in place to mitigate ongoing impacts that Austal is not immune to.

I am pleased to present the FY2020 Annual Report to shareholders on behalf of the Board of Austal Limited.

Despite significant global disruption and economic uncertainty due to the COVID-19 pandemic, the 2020 financial year saw Austal surpass its record earnings set in FY2019. This result is testament to

increasingly volatile global environment, whilst maintaining efficiency and consistency across our shipbuilding programs and support services.

It reflects the work done in each of our shipyards - the USA, Australia, Philippines, and Vietnam all of which remained fully operational throughout the year, including during the COVID-19 pandemic. We are cognisant though, that the COVID-19 situation remains dynamic and has the potential to have an impact on our operations by way of a slowdown of ferry orders and the health of our workforce. Austal continues to implement a range of health and wellbeing measures to protect our 6,800-strong workforce and will continue to monitor the situation closely and adapt as we seek to mitigate the potential impacts from the virus.

was $88.978 million in FY2020, 45.0% higher than the prior corresponding period (pcp), and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $176.139 million, up 30.5% on the pcp. Apart from being another record result, FY2020 was the fourth time that EBITDA exceeded the $100 third year in a row. These strong results helped enable the Board to increase the dividend payment irrespective of the pandemic, with a total of 8.0 cents per share (unfranked) in FY2020, up from 6.0 cents per share (unfranked) in FY2019.

$2,086.001 million in revenue, the first time in the

$2 billion. The investments made in our Australasia shipyards to increase throughput is translating into stronger financial performance, accounting for one-quarter of Group revenue in FY2020 despite ongoing revenue growth from Austal USA. By way of comparison, Australasia contributed just over 11%

Looking at our two segments, Austal USA reached a significant milestone during FY2020, celebrating 20 years of operations in December 2019. In just two decades Austal USA has grown to become a world-leading shipbuilder, being the only foreign-owned prime contractor designing, constructing and sustaining ships for the US Navy during that time. Austal USA has become the core driver of our financial performance, constituting approximately three-quarters of our revenue in FY2020 as it continued the efficient delivery of high-quality aluminium vessels to the US Navy, delivering three Expeditionary Fast Transport and Littoral Combat Ships during the year.

Meanwhile, we saw increasing contribution and improved margins from Australasia resulting from the completion of the investment and reorganisation of this division over the past three years. Led by a high-calibre team, the reinvigorated Australasian business is in a robust position to adapt and navigate through future obstacles. In Australasia, we are conscious that COVID-19 presents both logistical challenges for our integrated network of shipyards as well as the impact travel restrictions may have in softening demand for large vehicle ferries.

Austal Limited | 17

Our support business also continued to grow in the year, with revenue up 28.4% compared to FY2019, and 28.0% on a compounded basis over the last four years. This revenue growth highlights the success in our strategy to grow our global support business as an increasing number of Austal-designed and built vessels are being commissioned and deployed by the US Navy. We have grown

such as on the west coast of the USA and Singapore and are further building our support capabilities in Australia. Providing support services will deliver a long-term, stable income stream that will underpin sustained shareholder returns.

Looking ahead, Austal has entered FY2021 with a $4.3 billion order book. This was lower than 12 months ago, reflecting the delivery of our work in hand and the award of no additional vessels in the USA as the US Navy Guided-Missile Frigate Program competitive tender process took place. While the award of this program to an alternate bidder in May 2020 was clearly disappointing, our contracted orders for the US Navy extend through to 2024. The LCS and EPF contracts are at a mature phase and Austal is undertaking initiatives to expand our Mobile, Alabama shipyard. This includes the agreement we reached with the US Government during FY2020 to co-invest in building steel shipbuilding capability at the facility. These initiatives provide Austal with reasonable confidence that we will be positioned to participate in other US Navy programs in the medium-term.

Outside of the USA, in FY2020 we secured a $324 million contract to design and construct six evolved Cape Class Patrol Boats (CCPB) for the Royal Australian Navy. This is the largest contract for an Australian vessel construction program ever

-year history, and will assist in providing stability for our Australian shipyard and workforce in the years ahead as we look to navigate the economic challenges presented by COVID-19.

Austal continues to invest across the business and advance strategic initiatives that position us to win future vessel programs and support work. Chief Executive Officer David Singleton goes into more detail about these initiatives in his report. Refining and building on this strategy will be a key focus for our incoming CEO, Patrick Gregg, who will take the helm from David Singleton on 1 January 2021 following a planned six month transition period, as announced in June 2020.

Prior to joining Austal as Chief Operating Officer in February 2017, Mr Gregg most notably served in several senior project manager roles at BAE

companies, over a period of 11 years. Since his appointment, Austal has set up operations in

Vietnam, expanded its operations in the Philippines and won a new Cape class contract with the Australian Government. Australia, the Philippines, Vietnam and China are working well whilst producing quality defence and commercial vessels, which is a reflection of Mr engender similar characteristics from the workforce. Mr Gregg was appointed as COO with a view to him being a natural successor for the CEO role in the future and his achievements, skills and personal qualities exhibited over the past 3.5 years made him an ideal choice to take over from Mr Singleton. I would like to take this opportunity to thank Mr Singleton for his contribution on what will be almost five years as CEO at Austal when he finishes at the Company and wish him all the best for the future.

In order to maintain growth in the longer term, Austal must focus on ensuring its operations continue to evolve in a sustainable manner. Following the release of our inaugural Environmental, Social, and Governance (ESG) report last year, our focus is to build on these initiatives with a particular focus on environmental and social risks and opportunities in the year ahead. For example, Austal has active research and development projects targeting ways to design and construct vessels with increased fuel efficiency and reduced emissions, such as battery-powered smaller (up to 60 metres) ferries and larger vessels that could convert from diesel to LNG. Further details on our achievements and initiatives are contained in our FY2020 ESG report, which I encourage you to read.

We further enhanced tremuneration structures in this area led by Sarah Adam-Gedge as Chair of the Nomination & Remuneration Committee. As always, we welcome further feedback from shareholders about the Remuneration Report.

On behalf of the Board I would like to thank each and every one of our people for their adaptability and resilience during a period of unprecedented global uncertainty. are testament to their commitment during the year. I would like to acknowledge the Austal executive team and support managers for their leadership in guiding the Company through an unprecedented period. I also want to express my appreciation to

shareholders.

John Rothwell AO

Chairman

18 Austal Limited |

Financial Year Highlights

New records set for Group revenue and profit, profit increased by 45.0%.

Support revenue has grown at 28.0% compound annual growth rate (CAGR) over 4 years to $360.158 million.

Repositioning in Asia complete with expanded shipyards successfully launching their first major vessels.

Austal investing in steel shipbuilding as a foundation for new growth.

USA and Australia increasing defence expenditure, including in shipbuilding.

When we announced a record annual profit and revenue result this time last year, I told shareholders that it represented not a peak but rather a new normal for the business. I am delighted to announce that Austal has not only delivered but exceeded on this commitment, with the Company setting a new revenue and profit benchmark in the 2020 financial year. This was all the more impressive given the unprecedented events in the second half of FY2020, as the COVID-19 virus spread globally.

Austal exceeded its original revenue guidance for FY2020 by 10%, delivering more than $2 billion revenue for the first time in its history and a Net Profit After Tax of $88.978 million, up 45.0% on FY2019.

This record performance was driven by a clear strategy and strong operational momentum across our USA and Australasia operations, as we constructed and delivered naval vessels, large ferries, and provided ongoing support services.

A key development in this strategy has been growing our defence business, which is on a different economic cycle to other sectors and now represents circa 85% of our revenue base, a percentage which is set to grow further.

FY2020 operational performance was strong, with these record earnings importantly translating into robust cashflow and a further enhanced balance sheet. During FY2019, we indicated that this balance sheet strength would enable the next growth phase for the business by allowing Austal to focus on the strategic opportunities ahead.

USA

The US Congress now requires the US Navy to increase the number of ships in its fleet to 355, an increase of around 20%, with some reports of an intent to do this by as early as 2030. Further to this, it is being reported that the US highly-lethal and possibly unmanned vessels. This is due to the Navy seeking a more distributed lethality model than is represented by the large aircraft carrier style of its fleet, which has formed the core of naval sea power since the Second World War. This reorientation to mid-size ships,

manufacturing capabilities both today and in the future.

Following the award of the Guided Missile Frigate FFG(X) contract to an Austal competitor, Austal USA committed to a major investment that represents the biggest strategic step with our most valuable customer since we expanded our Mobile, Alabama shipyard over a decade ago. On 22 June 2020, Austal announced its intention to invest US$100 million in building a modern steel ship extension to the current shipyard in

contribute to a significant series of new shipbuilding programs for the US Navy. The investment is being funded in part through a Defense Production Act (DPA) agreement between Austal USA and the Department of Defense that would see the US Government contribute up to US$50 million of this investment.

Austal Limited | 19

This represents a significant strategic step to augment our current aluminium based operations to include a steel shipbuilding future, significantly broadening the opportunity horizon for the Company. This is at a time when a number of new, major steel shipbuilding programs in our size range are expected to come up for tender in the medium term. The strategic investment by the US Government

industrial base. Austal is well primed to capitalise on these growth opportunities as we continue to develop new vessels, including EPF variants and unmanned ships.

The DPA agreement is designed to create employment and defence industrial capability at a time of increasing global tensions and an expanding US Navy. The published US Navy and Coast Guard acquisition plan includes multiple new ship types that will begin to be manufactured during the FY2023 timescale. Many of these ships can be built in the new Austal steel shipbuilding facilities, which is planned to be completed in CY2022. This strategic move to steel ships in the United States, in addition to our aluminium shipbuilding heritage, is an exciting long-term opportunity for Austal.

Australasia

The same macro factors driving growth of the US Navy are also apparent in Australia. We have seen the Australian Government commit to a major increase in defence expenditure to counter the increasing threats in the region. For example,

-vessel Guardian Class Patrol Boat

commitment to the South Pacific islands.

The more recent, $324 million Cape Class Patrol Boat (CCPB) contract for the Royal Australian Navy which will help underpin the Henderson shipyard over the next three years is another example of the Australian Government stepping up its commitment to Defence.

The Defence White Paper has committed significant additional funds for new heavy steel ships, which has potential to be a very important area for Austal in the future.

This focus on large steel ships also presents an opportunity for Austal in Asia, where in a not dissimilar way to the USA we could for the first time have the capacity to build large steel navy vessels. This could open up a whole new area for us, not only for Australia, but also in Asia which we believe will be a strong naval market for many years to come. The Offshore Patrol Vessel program in the Philippines is a good example of how this can develop over time a substantial growth opportunity which could potentially be replicated with the new large naval vessels for the Royal Australian Navy.

Support

Our strategic initiative to build our support business continues but with increased emphasis. This emphasis has been successful based on a compounded annual growth rate of 28.0% over the last four years, and our ratio of support revenue to new build revenue in the USA has increased from 11.6% two years ago to 18.3% now.

For some years building this long term income stream in support has been a priority and the focus has seen further milestones in the year

operations in San Diego and our presence in Singapore to support the Littoral Combat Ships when they are deployed to the region. In addition, we were recently accredited by the US Navy to

Australian locations. We also continue to plan and focus on more opportunities out of the Philippines and in other areas, which have the ability to see major growth over the next few years again primarily for the US Navy.

20 Austal Limited |

Another positive which has come from our financial success has been the ability to invest aggressively in Research and Development, both in the USA and Australia. Austal has now, for the first time, appointed a Chief Digital Officer. This move recognises the tangible advances that bolstering our R&D capabilities has, and will continue to have, in improving both our products and our processes.

The MARINELINK-Smart system, which started development 3 years ago, is now being fitted to production vessels and offers Austal a unique competitive advantage by reducing fuel usage and improving passenger comfort, with further software applications to be developed to create expanded functionality. In addition to this, we are developing a sophisticated, cloud native, maintenance planning system that directly interacts with the ship it is installed in. This product was initially developed through our R&D department and has now been sold to the Royal Australian Navy.

has been in the USA and now Australia developing large autonomous or unmanned defence vessels that can operate at sea for extended durations. Together with electric boats, LNG vessels and other technologies, we are determined that Austal maintains its leading technology focus to build and support the advanced vessels demanded by defence and commercial operators alike.

Conclusion

Whilst business performance improvement at Austal over the last few years has been very obvious to investors, I believe that the strategic steps that we have taken and have underway across the board for steel shipbuilding, support and technology development will continue to see the business flourish in the future.

David Singleton

Managing Director and Chief Executive Officer

Austal Limited | Review of operations 21

Review of operations

Group financial results

Total revenue for the year increased by 12.7% to $2,086.001 million in FY2020.

FY2020 earnings before interest and tax (EBIT) increased by 40.5% to $130.396 million compared to $92.795 million in FY2019.

Austal reported a net profit after tax (NPAT) of $88.978 million in FY2020 compared to $61.384 million in FY2019.

The Group delivered operating cash flow of $164.472 million, in-line with FY2019, and FY2020 net cash flow of $121.002 million up by 6.5% on FY2019.

Austal has maintained a strong cash balance of $396.667 million at 30 June 2020 demonstrating the ongoing cash generating strength of the business (30 June 2019: $275.665 million).

Net cash (excluding the accounting treatment of the notional CCPB 9 & 10 leasing program) was $272.412 million at 30 June 2020 (30 June 2019: $150.709 million).

Total unfranked dividends of 8.0 cents per share were declared in respect of FY2020, representing a 32.0% payout ratio (FY2019: 6.0 cents per share, unfranked).

People & Safety

The COVID-19 pandemic has rapidly emerged as one of the biggest global health challenges in modern history and was a major focus in FY2020. As at the date of this report, 156 Austal employees have tested positive to COVID-19 (2 in the Philippines, 3 in Australia, and 151 in Mobile, USA). All of these employees are currently in isolation or have completed a comprehensive isolation period and are recovering well or have already recovered. Austal has placed a strong emphasis on supporting the health and wellbeing of these employees and their colleagues, with comprehensive sanitisation at worksites implemented in addition to the isolation measures.

in conjunction with other preventative measures, such as social distancing and the broad use of virtual meetings, has helped to mitigate the risk of a large-scale virus outbreak among our employees.

We have seamlessly integrated these significant measures into our existing Health, Safety, Environment & Quality (HSEQ) Integrated

approach to health and safety has been maintained as the primary value of our Company.

Our HSEQ department has continued to regularly reinforce this important program to all of our 6,800 -strong workforce.

The department undertakes daily pre-start meetings, monthly HSEQ Toolbox sessions, offers nationally accredited training, and provides ongoing education and awareness briefings to underpin this hands-on, data-driven approach to managing safety risks.

This has yielded tangible results, as we made positive progress on our during FY2020.

2020 2019

000 000

Revenue 2,086,001$ 1,851,021$

EBITDA 1

176,139 135,001

EBIT 2 130,396 92,795

NPAT 3 88,978 61,384

EBITDA margin 8.4% 7.3%

EBIT margin 6.3% 5.0%

Net assets 748,743$ 630,783$

Net cash position 4

272,412 150,709

Net cash flow 121,002 113,641

Earnings per share ($ per share) 0.250$ 0.176$

Dividends per share ($ per share) 0.080 0.060

Payout ratio 32.0% 34.2%

1. Earnings before interest, tax, depreciation and amortisation (EBITDA).

2. Earnings before interest and tax (EBIT).

3. Net Profit / (loss) after tax (NPAT)

4. Excludes CCPB 9 & 10 notional lease debt

EBIT and EBITDA are non-AASB measures.

EBIT is used to understand segment performance

EBITDA is used by management to understand cash flows within the Group.

The information is unaudited but is extracted from the audited accounts.

22 Austal Limited | Review of Operations

Across our Group operations, the 12-month rolling Medically Treated Injury Frequency Rate (MTIFR) was reduced by 32.4% compared to the prior corresponding period, and our Lost Time Injury Frequency Rate (LTIFR) was reduced by 18.8% compared to the prior corresponding period.

The Company is not taking these positive results for granted we are perennially enhancing our HSEQ policies to ensure our Group Safety performance indicators continue to improve.

For example, Austal Australia launched a new health and safety campaign during FY2020

is incorporates refined messaging to individual employees, ensuring everyone in Austal is aware of the specific role they have to play in the Group achieving its Zero Harm goal.

Continuous improvement in our Group Safety performance indicators will grow our business in a sustainable way. This benefits our employees, shareholders, and the broader community in which we operate

Further details on Health, Safety and Environmental

Environmental, Social and Governance (ESG) Report.

New contract awards

Austal received $852 million of new contract awards during FY2020 to bring the order book to $4.3 billion at 30 June 2020.

USA

Austal was awarded a modification contract worth up to US$43 million. The modification relates to a previously awarded Littoral Contract Ship contract and exercises options for LCS Class design services, material to support LCS

Integrated Data Product Model Environment (IDPME).

The Company received a Post Shakedown Availability service contract totalling US$23 million for support activities, including dry docking, on the USS Tulsa. The USS Tulsa is an Independence Class Littoral Combat Ship manufactured by Austal.

Australasia

A $324 million contract was awarded to design and construct six Cape Class Patrol Boats (CCPB) for the Royal Australian Navy (RAN). The six vessels will be added to the RAof two CCPB delivered in 2017 and extends

lass Patrol Boat program to a total of 16 vessels in Australia.

A contract worth approximately $126 million to construct two CCPB for the Government of the Republic of Trinidad & Tobago.

A $136 million contract secured for the design and construction of a 115 metre high-speed catamaran for Molslinjen of Denmark. The catamaran will be designed in Henderson and then built at our shipbuilding facility in Balamban in the Philippines.

Awarded a $16 million contract for a 41 metre, high-Vietnam shipyard.

A financial summary for each segment has been included below, including AASB and non-AASB information. This information has been extracted from the audited financial statements and included in order to demonstrate performance across the operating segments.

21.7

14.1 14.2

10.7 10.4 10.1

6.8

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Medical Treatment Injury Frequency Rate(Injuries per million hours worked)

3.90

2.10 1.75

3.11 3.62

2.07 1.68

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Lost Time Injury Frequency Rate(Injuries per million hours worked)

Austal Limited | Review of Operations 23

US operations

US segment financial performance

USA revenue increased by $131.085 million (8.9%) compared to FY2019 to deliver $1,603.764 million in FY2020.

EBIT also increased by $16.595 million (15.6%) on FY2019 to $123.017 million representing further year on year improvement in profitability.

Revenue and earnings in FY2020 were higher than the prior corresponding period, principally due to:

Increased throughput on the EPF program.

Increasing maturity of the LCS and EPF programs, delivering greater efficiencies.

Strong support earnings as the Austal fleet of vessels grow.

A weaker average USD / AUD exchange rate positively impacted the translation of USD EBIT into AUD by $7.258 million.

Vessel construction & deliveries

Austal USA delivered three vessels to the United States Navy (USN) in FY2020; EPF 11 USNS Puerto Rico in December 2019, LCS 22 USS Kansas City in February 2020, and LCS 24 USS Oakland in June 2020.

Two additional EPF remain under construction at Aust EPF 12, the USNS Newport, is in final assembly, while construction recently began on EPF 13, the future USNS Apalachicola and EPF 14, the future USNS Cody is under contract.

Five LCS are presently under various stages of construction. LCS 26, the future USS Mobile, is preparing for sea trials. Assembly is underway on LCS 28, the future USS Savannah, and LCS 30, the future USS Canberra. Modules are under construction in the module manufacturing facility (MMF) for LCS 32, the future USS Santa Barbara and LCS 34, the future USS Augusta. LCS 36, the future USS Kingsville and LCS 38, the future USS Pierre, are under contract.

Sustainment

With a growing fleet of LCS and EPF sustainment business has continued to experience organ

growing service presence in San Diego, California, which is the home port for the Independence-class LCS constructed by Austal.

Sustainment revenue increased by $68.417 million (30.5%) compared to FY2019 to $293.017 million in FY2020. EBIT increased by $0.546 million (3.3%) on FY2019 to contribute $16.868 million.

Future US defense programs

In June 2020, Austal entered into a significant strategic investment that will see the US Government contribute up to US$50 million under a Defense Production Act Title III Agreement (DPA Agreement) between Austal USA and the Department of Defense. Austal will match the DPA Agreement funding, which would take the total co-investment to circa US$100 million. This investment has the potential to

shipbuilding future because a number of new, major steel shipbuilding programs are expected to be tendered in the medium term.

Further details about the purpose and specific use of these funds will be released as they are agreed between Austal and the DoD in FY2021.

Australasia operations

hilippines, Vietnam, Aulong Joint Venture and Muscat operations are combined into a single Australasia operations reporting segment.

These locations act as a single business unit for tendering, scheduling, resource planning and management accountability.

2020 2019

$ 000 $ 000

Revenue

Shipbuilding 1,310,747$ 1,248,079$

Support 293,017 224,600

Total 1,603,764$ 1,472,679$

EBIT

Shipbuilding 106,802$ 98,633$

Support 16,868 16,322

Other (653) (8,533)

Total 123,017$ 106,422$

EBIT Margin

Shipbuilding 8.1% 7.9%

Support 5.8% 7.3%

Total 7.7% 7.2%

24 Austal Limited | Review of Operations

Australasia financial performance

The Australasia segment reported revenue increase of $103.619 million (26.4%) compared to FY2019, to reach $496.774 million for FY2020.

EBIT also increased by $19.213 million (164.6%) relative to FY2019. EBIT for FY2020 was $30.886 million.

Revenue and earnings in FY2020 were higher than the prior corresponding period, predominantly due to:

The award of a $324 million contract to design and construct six evolved CCPB for the Royal Australian Navy (RAN) on 1 May 2020, the largest contract for an Australian vessel construction program ever awarded to Austal in

-year history.

Higher sustainment activity, including the continuation of servicing and support the CCPB fleet of vessels operated by the Australian Border Force and the RAN.

Expanded shipyard in the Philippines and new shipyard in Vietnam both launching their first major commercial ferry vessels and experiencing strong construction activity.

Significant progress on a $126 million contract to construct two 58 metre aluminium monohull CCPB for the Government of the Republic of Trinidad and Tobago, which was awarded in August 2019.

Vessel deliveries

Four vessels were delivered from Australasia during the year:

Three GCPB for the Commonwealth of Australia in August 2019, November 2019, and March 2020. The first 6 vessels of the 21-ship Guardian Class Patrol Boat (GCPB) program have now been delivered.

A 49 metre high-speed passenger ferry to SNC Aremiti in August 2019.

Vessel construction

Progress was made on the vessels currently under construction:

109 metre, $108 million Fjord Line ferry (awarded in August 2017).

Two 117 metre Fred Olsen trimaran ferries in a $190 million total contract (awarded in October 2017).

83 metre, $68 million trimaran ferry for JR Kyushu of Japan (awarded in March 2018).

Two Cape Class Patrol Boats for the Government of the Republic of Trinidad & Tobago in a contract worth $126 million (awarded in August 2019).

$136 million contract for a 115 metre high-speed catamaran for Molslinjen of Denmark (awarded in October 2019).

41 metre, $16 million high-speed catamaran ferry for STGM Mauritius (awarded in January 2020).

$324 million contract for six CCPB for the Royal Australian Navy (awarded in May 2020).

Sustainment

Sustainment activity in FY2020 included the continuation of servicing and support for the fleet of 8 Cape Class Patrol Boats operated by the Australian Border Force throughout Northern Australia, plus a sustainment contract worth up to $24 million over two years for CCPB 9 & 10, Cape Fourcroy and Cape Inscription, being operated by the Royal Australian Navy.

Innovating for the future

Austal continues to invest in bolstering its technological capabilities in order to enhance our products and our processes. This will provide us with substantial competitive advantages in the future.

The company is prioritising innovative solutions to increase the energy efficiency and broader artificial intelligence/machine learning capabilities of its vessels.

In Australasia, we have developed a sophisticated maintenance planning system that directly interacts with the ship it is installed in, which has been sold to the Royal Australian Navy.

2020 2019

$ 000 $ 000

Revenue


Support 70,754 70,100

Total 496,774$ 393,155$

EBIT


Support 13,047 5,321

Total 30,886$ 11,673$

EBIT Margin

Shipbuilding 4.2% 2.0%

Support 18.4% 7.6%

Total 6.2% 3.0%

SHAREHOLDER INFORMATION

Austal Limited | 25

report

The Board of Directors of Austal Limited submit their report for the year ended 30 June 2020.

Directors

The names and details of the Directors in office at the date of this report are detailed below:

John Rothwell AO Non-Executive Chairman

John has played a major role in the development of the Australian aluminium shipbuilding industry approaching 50 years of experience in boat and shipbuilding. He is the architect responsible for the establishment of Austal and was the founding Managing Director. John identified markets for high speed ferries throughout Asia which resulted in

He saw the potential for US Defense contracts for high speed aluminium naval ships and he led the formation of a new shipyard in Mobile, Alabama in 1999.

John was appointed as an Officer of the Order of Australia (AO) in January 2004 for services to the Australian shipbuilding industry, and for significant contributions to vocational education and training. Hby Ernst and Young in 2002 and he was awarded the Western Australia Citizen of the Year in the category of Industry and Commerce in 1999.

John stepped down as Executive Chairman in 2008 to continue as Non-Executive Chairman after managing the Company for 20 years.

David Singleton Chief Executive Officer

David has spent much of his career in the defence industry around the world in roles encompassing design, heavy manufacturing, customer support and international sales. He was a Non-Executive Director of Austal for four years before becoming CEO in April 2016.

David has held numerous defence companies, including Group Head of Strategy and Mergers & Acquisitions in London from 1997 to 1998 and again in 2003.

David was the Chief Executive Officer of Alenia Marconi Systems (AMS) in the intervening years; a joint venture between BAE Systems and Finmeccanica that had turnover of circa

Italy, USA and Germany. AMS was a European leader of naval warfare and air defence systems, C4I (command, control, communications, computers and intelligence), ground and naval radars, naval command and control training systems and long term naval support.

David started his career with the UK Ministry of Defence and worked in research, development and manufacturing as well as in senior management roles in Royal Ordnance, which was eventually acquired by BAE. Most recently, David was the CEO and Managing Director of Perth based mining company Poseidon Nickel Limited. Prior to this role, he served as CEO and Managing Director of Clough Limited between 2003 and 2007. David has a degree in Mechanical Engineering from University College London and has an Honorary Doctorate of Engineering from Edith Cowen University in Western Australia.

On 3 June 2020 the Company announced that David will be stepping down from the CEO role and leaving Austal on 31 December 2020, following 9 years with Austal including 5 years as CEO.

26 Austal Limited | Directors

Giles Everist Independent Non-Executive Director

Giles has a breadth of board and executive experience gained over his 30 year career. He has worked for a range of production and service based businesses, within the resources, engineering and construction sectors, both in Australia and overseas in the UK and Africa.

Giles was appointed as a Non-Executive Director of the Company in November 2013 and Audit & Risk Committee Chair in November 2015. Giles holds a mechanical engineering degree and is a qualified chartered accountant. Giles is currently a Non-Executive Director of Norwood Systems and Chief Financial Officer of Macmahon Holdings Limited. He was Chairman of ASX listed Decmil Group Limited between 2011 and 2014 and was formerly the Chief Financial Officer and Company Secretary of Monadelphous Group Limited between 2003 and 2009. He has held senior financial executive roles during his career with Rio Tinto in the United Kingdom and Australia, as well as major US design engineering group Fluor Corporation.

Giles has held a number of other Non-Executive Director and Audit & Risk Committee Chair roles with ASX listed companies including Decmil Group Limited, Logicamms Limited and Macmahon Holdings Limited, as well as for a number of private and not for profit organisations.

Sarah Adam-Gedge Independent Non-Executive Director

Sarah was appointed as a Non-Executive Director of the Company in August 2018, became Chair of the Nomination and Remuneration Committee in September 2018 and Deputy Chair of the Austal Limited Board in September 2019. She brings strong consulting, customer experience, digital and technology expertise to Austal through her experience in executive roles in the information technology and consulting sectors.

Sarah is currently the Managing Director for Publicis Sapient Australia, which is the digital business transformation hub of the Publicis Groupe. Previously, she has been the Managing Director of Avanade Australia, Managing Partner and Vice President, Global Business Services at IBM and has also previously held senior executive roles at PwC and Arthur Andersen, leading the development and implementation of numerous digital enterprise transformation engagements across many industries. Sarah has worked extensively across Asia-Pacific, as well as the Middle East and Africa, and Latin America.

Sarah is a Chartered Accountant and member of the Institute of Chartered Accountants Australia / New Zealand. Sarah holds a Bachelor of Business (Accounting) from the Queensland University of Technology and is a Graduate of the Australian Institute of Company Directors, is a member of the Diversity Council for the Australian Computer Society, was previously a Non-Executive Director, and Chair of the Finance, Audit and Risk Committee for Ovarian Cancer Australia.

Chris Indermaur Independent Non-Executive Director

Chris was appointed as a Non-Executive Director of the Company in October 2018 and to the Nomination and Remuneration Committee in August 2019. Chris has over 30 years of experience in large Australian companies in Engineering and Commercial roles. Amongst these roles he was the Engineering and Contracts Manager for the QNI Nickel Refinery at Yabulu, Company Secretary for QAL and General Manager for Strategy and Development at Alinta Limited.

Chris holds a Bachelor of Engineering (Mechanical) and a Graduate Diploma of Engineering (Chemical) from the West Australian Institute of Technology (now Curtin University). He also holds a Bachelor of Laws and a Master of Laws from the Queensland University of Technology and a Graduate Diploma in Legal Practice from the Australian National University.

Chris is also a Director of Austin Engineering Limited.


Austal Limited | 27

Interests in the shares and options of the company and related corporate bodies

The interests of the Directors in the shares of Austal Limited at the date of this report were as follows:

Principal activities

The principal activities of the companies within the consolidated entity during the year were the design, manufacture and support of high performance vessels for commercial and defence customers worldwide. These activities are unchanged from the previous year.

Results

The net profit after tax of the consolidated entity for the financial year was $88.978 million (FY2019: $61.384 million).

Review of operations

A review of the operations and financial position of the consolidated entity is outlined in the Review of Operations on page 21.

Share price at 30 June 2020

The closing share price of Austal at 30 June 2020 was $3.23 (30 June 2019: $3.41).

Dividends

An unfranked dividend of 3.0 cents per share was paid after the FY2020 H1 results (FY2019 H1: 3.0 cent per share) and a further dividend of 5.0 cents per share has been proposed for FY2020 (FY2019 final: 3.0 cents per share).

Director Ordinary Shares Share Rights Indeterminate Rights

Mr John Rothwell 32,307,692 - -

Mr David Singleton 1,222,721 1,222,192 106,251

Mr Giles Everist 30,441 - -

Mrs Sarah Adam-Gedge 10,000 27,909 -

Mr Chris Indermaur - 13,741 -

28 Austal Limited |

Significant events after the balance date

The Directors have declared an unfranked dividend of 5.0 cents per share in respect of the year ended 30 June 2020 as described above.

Austal entered into a purchase agreement with Modern American Recycling and Repair Services (MARRS) to acquire over 15 acres of waterfront land, buildings and assets including an existing dry dock on the MARRS Mobile riverfront property in Mobile, Alabama on 21 August 2020.

Further information is provided on Page 126 and in the ASX announcement dated 21 August 2020.

Likely developments and future results

A general discussion of the Group report on page 16 report on page 18 and the Review of Operations on page 21.

Significant changes in the state of the affairs

Mr David Singleton gave notice from his role as CEO on 3 June 2020 and will remain in this role until 31 December 2020. Please refer to 2020 for further information.

There were no other significant changes to the structure or operations of the Group during the financial year.

Environmental regulation and performance

The Group has a policy of at least complying with, but in most cases exceeding, environmental performance requirements. No environmental breaches have been notified by any Government agency during the year ended 30 June 2020.

Share rights, performance rights, indeterminate rights and service rights

There were 3,117,967 un-vested performance rights, 3,032,101 share rights, 214,440 indeterminate rights and 330,704 service rights at 30 June 2020.

1,229,304 performance rights and 14,352 share rights, 214,440 indeterminate rights and 338,677 service rights were granted during FY2020.

Indemnification and insurance of Directors and Officers

An indemnification agreement has been entered into between the parent entity and each of the Directors and Officers named in this report. The company has agreed to indemnify those Directors and Officers against any claim for any expenses or costs which may arise as a result of work performed in their respective capacities to the extent allowed by the law.

The parent entity paid premiums during the financial year in respect of a contract insuring the Directors and Officers of the Group in respect of liability resulting from these indemnities. The terms of the insurance arrangements and premiums payable are subject to a confidentiality clause.

Indemnification of auditors

The parent entity has agreed to indemnify its auditors, Deloitte Touche Tohmatsu, against claims by third parties arising from the audit (for an unspecified amount) to the extent permitted by law, as part of the terms of its audit engagement agreement. No payment has been made to indemnify Deloitte Touche Tohmatsu during or since the financial year.


Austal Limited | 29

Committee membership

The Company has an Audit & Risk Committee and a Nomination & Remuneration Committee of the Board of Directors. Members acting on the committees of the Board during the year were:

The number of Board and committee meetings of Directors and the attendance by each Director during the year was as follows:

Rounding

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in Financial / trument 2016 / 191. The Company is an entity to which the instrument applies.

Audit & Risk Nomination & Remuneration

Mr Giles Everist 1 Mrs Sarah Adam-Gedge 1

Mrs Sarah Adam-Gedge Mr John Rothwell

Mr Chris Indermaur Mr Giles Everist

Mr Chris Indermaur 2

1. Chair of the committee.

2. Appointed on 28 August 2019.

Meeting

Nomination &

Audit & Risk Remuneration

Board Committee Committee

Number of meetings held 8 4 3

Number of meetings attended:

Mr John Rothwell 8 - 3

Mr David Singleton 8 4 1 3 1

Mr Giles Everist 8 4 3

Mrs Sarah Adam-Gedge 8 4 3

Mr Chris Indermaur 8 4 3

1. Attended as a guest.

30 Austal Limited |

Nomination

message

Dear Shareholder,

The Board of Directors is pleased to present the Remuneration Report for FY2020, outlining the nature and amount Non-Executive Directors and other Key Management Personnel (KMP).

2019 remuneration resolutions

I would like to thank shareholders for the overwhelmingly positive support provided in favour of remuneration related resolutions at the 2019 AGM.

KMP remuneration

Despite the global pandemic impacting many industries, Austal achieved record performance and has been largely unaffected by COVID-19 to date. This performance has led to the KMP being awarded short-term incentives through the achievement of objectives detailed within this report. In addition, the consistent and improved performance over the last three years supports the achievement of long-term incentives, aligned to the interests of shareholders.

KMP update

In June 2020 Austal announced that its Chief Operating Officer (COO) Patrick Gregg, will be promoted to the position of Chief Executive Officer (CEO) effective 1 January 2021, following a six month transition with current Managing Director and CEO David Singleton. The details of CEO remuneration are included within this report.

Austal announced the promotion of Andrew Malcolm to the newly created KMP role of Chief Digital Officer in July 2020. This new role reproducts and within operational business processes.

Given the uncertainty created by COVID-19, the Board determined to freeze remuneration for KMP for FY2021. This applies to KMP outside of the USA, and does not apply to KMP who change roles during the course of the year.

NED update

As part of the remuneration reviews undertaken by the Board, NED remuneration was also subject to external benchmarking analysis, and appropriate fee increases were provided at the 50th percentile (where 50% of the comparator group are above the median level and 50% are below the median level) for FY2020. This is the first time NED remuneration has been increased since 2016.

During the year, NECorporate Governance Statement, which confirmed the appropriate mix of skills exist within the Board.

In support of Chairman John Rothwell, the Board decided to create a role of Deputy Chair to the Board and I was appointed into this role in September 2019.

Commitment to ongoing feedback, and shareholder support

In noting the excellent performance of the Company together with the ongoing moderation of KMP remuneration, the Board looks forward to the continued support of shareholders for remuneration related resolutions at the upcoming AGM. The Board will continue to consider further improvements to remuneration governance, policies, and practices, and commits to engaging with shareholders and their representatives on these matters.

The Board will be pleased to receive feedback in relation to this report.

Yours sincerely,

Sarah Adam-Gedge

Chair, Nomination & Remuneration Committee


Austal Limited | Remuneration report [audited] 31

Remuneration report [audited]

This Remuneration Report for the year ended 30 June 2020 outlines the remuneration arrangements of the Company in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act.

1. Key management personnel ................................................................................................................................................................ 32

2. Remuneration governance framework ............................................................................................................................................ 33

3. Executive KMP remuneration policy ................................................................................................................................................. 35

5. Executive KMP remuneration .............................................................................................................................................................. 42

6. Non-Executive Director remuneration ............................................................................................................................................. 50

8. Equity instruments held by KMP ........................................................................................................................................................ 53

9. Other related matters ............................................................................................................................................................................. 58

32 Austal Limited | Remuneration report [audited]

1. Key management personnel

This report covers all Key Management Personnel (KMP) as defined in the Accounting Standards, including all Directors, as well as those Senior Executives who have specific responsibility for planning, directing, and controlling material activities of the Group.

The KMP for the year ended 30 June 2020 were:

Senior Executives

Mr David Singleton Independent Non-Executive Director from December 2011 to April 2016

Chief Executive Officer and Managing Director since April 2016

Mr Singleton has tendered his resignation and will continue as CEO until 31 December 2020.

Mr Greg Jason Group Chief Financial Officer since January 2013

Mr Craig Perciavalle President USA since November 2012

Mr Patrick Gregg Chief Operating Officer Australasia since February 2017

Non-Executive Directors

Mr John Rothwell Chairman since 1998

Member of the Nomination & Remuneration Committee since December 1998

Mr Giles Everist Independent Non-Executive Director since November 2013

Member of the Nomination & Remuneration Committee since February 2014

Chair of the Audit & Risk Committee since October 2014

Mrs Sarah Adam-Gedge Independent Non-Executive Director since August 2017

Member of the Audit & Risk Committee since August 2017

Chair of the Nomination & Remuneration Committee since September 2018

Deputy Chair of the Board since September 2019

Mr Chris Indermaur Independent Non-Executive Director since October 2018

Member of the Audit & Risk Committee since October 2018

Member of the Nomination & Remuneration Committee since August 2019



2. Remuneration governance framework

The following framework and strategy broadly outlines the principles and policies that the Board applies in overseeing KMP remuneration:

I. Nomination & Remuneration Committee Charter

The role and responsibilities of the committee are outlined in the Nomination & Remuneration Committee Charter (the Charter), which is available on the Austal website.

The role of the Nomination & Remuneration Committee (NRC) is to ensure that appropriate remuneration policies are in place which are designed to meet the needs of the Company and to enhance corporate and individual performance.

The Committee also oversees the implementation of the policies in setting remuneration and performance objectives related to the Short Term Incentive (STI) and Long Term Incentive (LTI) plans.

The remit of the NRC also includes succession planning which was undertaken for the Directors of the Board during FY2020.

The Charter specifies that the NRC is to be composed of at least three members with the majority being independent directors.

II. Share trading policy

The Share Trading Policy of Austal is available on the Austal website. The Policy contains the standard references to insider trading restrictions that are a legal requirement under the Corporations Act, as well as conditions associated with good corporate governance. The Policy

any employee in possession of inside information must not trade in the securities of the Company, unless written permission is provided by the Board following an assessment of the circumstances.

Policy.

III. Executive remuneration consultant engagement policy

Austal has an executive remuneration consultant (ERC) engagement policy which is intended to manage the interactions between the Company and the ERC. The policy is intended to ensure independence of advice and to provide clarity to the NRC regarding the extent of any interactions between management and the ERC. This policy enables the Board to state with confidence that advice received has been independent. The policy states that ERC are to be approved and engaged by the Board before any advice is received and that such advice may only be provided to a NED. Any interactions between management and the ERC must be approved and overseen by the NRC, this includes the collection of factual internal records (e.g. superannuation paid or allowances and benefits).

IV. Stakeholder engagement

The Company seeks input regarding the governance of KMP remuneration from a wide range of sources, including:

Shareholders

NRC Members

Stakeholder groups including proxy advisors

External remuneration consultants (ERC)

Other experts and professionals such as tax advisors and lawyers

Company management to understand roles and issues facing the Company.


V. Remuneration framework

fairly and competitively based on performance needs to be balanced with the requirement to do so within the context of principled behaviour and action, particularly in the area of safety, risk, compliance and control.

culture and goals. The Remuneration Policy Framework set out below summarises the key features of

thoroughly reviewed and substantially modified in FY2019 following feedback at the 2018 Annual General Meeting.

Our Vision

Maintain a responsible, performance-based Remuneration Policy aligned with the long-term interests of shareholders.

Certain incentive metrics are utilised on the Remuneration framework to capture the impact of the Group s strategy.

Our Goal

Strike the right balance between meeting shareholders' expectations, paying our employees competitively,

and responding appropriately to the regulatory environment.

Our Approach

Governance

Clearly defined and documented governance procedure.

Independent Nomination and Remuneration Committee (NRC).

Independent External Remuneration Consultants (ERC).

Annual assessment of Remuneration Policy.

Individual Remuneration

Reward annual performance of Group relative to planned key performance indicators.

Aligned with business performance.

Recognise and reward teamwork and development of the culture of the organisation.

Award and differentiate based on individual performance and contributions.

Individual Remuneration Determination

Total remuneration based approach.

Facilitate competitiveness by paying remuneration for comparable roles and experience, subject to performance.

Promote meritocracy by recognising individual performance, with an emphasis on contribution, ethics and safety.

Equal remuneration opportunity.

Remuneration Structure

Provide the appropriate balance of fixed and variable remuneration consistent with the position and role.

Significant portion of variable remuneration deferred and aligned with the long-term performance of the Group.

Promote ethical behaviour and do not create incentives to expose the Group to inappropriate risk.



3. Executive KMP remuneration policy

I. Structure

The following policy applies to executive KMP:

Total Remuneration Packages (TRP) should be composed of:

Total Fixed Remuneration (TFR) which is inclusive of superannuation, allowances, social security, benefits and any applicable fringe benefits tax (FBT) as well as any salary sacrifice arrangements.

STI which provides a reward for performance against annual objectives.

LTI which provides an equity-based reward for performance against indicators of shareholder benefit or value creation, over a three year period.

Internal TRP relativities and external market factors should be considered.

TRP should be structured with reference to market practices and the particular circumstances of the Group where appropriate.

II. Total fixed remuneration

i. Framework

Base Packages should be set with reference to the market practice of ASX listed companies at the 50th percentile, where 50% of the comparator group are above the median level and 50% are below the median level.

Total Remuneration Package (TRP) at Target bonus levels (being the Base Package plus incentive awards intended to be paid for targeted levels of performance) should be between the 50th and 75th percentile range of the relevant market practice to create a strong incentive to achieve targeted objectives in both the short and long term.

Remuneration will be managed within a range to allow for the recognition of individual differences such as individual experience, knowledge or competency with which they fulfil a role (a range of + / - 20% is generally targeted in line with common market practices).

ii. CEO minimum equity holding

The CEO must accumulate and hold a minimum equity holding that is equal to or greater in value than 1 year of TFR. The minimum equity holding includes shares, share rights and vested indeterminate rights, but does not include unvested performance rights.

The minimum equity holding may be achieved by the vesting of LTI grants, personal purchase of shares on market by the CEO, or the CEO and the Board may agree at the commencement of each year for up to 30% of TFR to be unconditionally (not subject to performance conditions since it is part of TFR) payable in share rights.

The number of share rights issued will be calculated monthly based upon the volume weighted ASX trading days of each

month.

FR less the component granted in equity).

Mr Singleton exceeded his minimum equity holding target by the end of FY2019 and therefore TFR was paid in share rights during FY2020.


III. Short term incentive (STI) policy

The short term incentive policy provides for a component of annual remuneration of executives to be at-risk, payable in a mix of cash and equity and based upon an assessment of performance measured using Key Performance Indicators (KPI) that are aligned to the relevant business unit of each individual and the Company performance.

i. Purpose

The purpose of the STI Plan is to incentivise KMP to deliver and outperform KPI and annual business plans that are challenging but achievable. This is intended to lead to sustainable superior returns for shareholders and to modulate the cost of employing KMP such that the cost of employment reflects the performance of the Company.

ii. Principles

The principles of the plan are that:

STI should be aligned with clear and measurable targets which are set at the start of the

business plan.

STI payments will be determined after the end of the financial year and the full year accounts have been approved by the Board.

STI payments are at the full discretion of the Board even if hurdles are met in order to avoid inappropriate outcomes.

iii. Form of remuneration - cash and equity

STI awarded to all non-USA Executive KMP will be paid as follows:

50% in cash.

50% in Indeterminate Rights (refer to the definition below) with a minimum holding period of 3 years irrespective of continued employment.

The Austal USA President receives 100% of STI in cash.

iv. Indeterminate Rights

Indeterminate Rights are contractual rights to the value of a share in the Company which are

cash. All issuances of equity under STI and LTI arrangements from FY2019 onwards are in the form of Indeterminate Rights, based on the recommendations of an independent External Remuneration Consultant (ERC) engaged by the Board during FY2019, and issuance subject to shareholder approval where required.

v. Measurement period

The Measurement Period for STI awards is the financial year of the Group.

vi. Determination of STI award

The Board reviews and approves performance targets and objectives annually for the CEO; other executive KMP targets and objectives are also reviewed annually. The final STI award is determined subsequent to financial year end, with the payment made in September of the following financial year.

The Board has the discretion to not grant STI performance awards in the event of substandard Group performance, notwithstanding that individuals may have achieved their agreed pthe expectations and outcomes of shareholders.



vii. Key performance indicators (KPI)

KPI are customised for each KMP, Senior Executive and Manager and reflect the nature of their role, whilst creating shared objectives where appropriate.

Weightings are applied to the KPI selected for each participant to reflect the relative importance of each KPI whilst ensuring that financial metrics always constitute at least 50% of the total.

Satisfaction of KPI performance conditions are assessed qualitatively and quantitatively against the targets defined at the start of the financial year.

The FY2020 KPI are contained in the STI KPI target and outcomes section on page 44.

viii. Cessation of employment during a measurement period

STI awards will only be made to those participants that are still employed at the end of the Measurement Period (30 June each year).

ix. Cessation of employment post measurement period

Resignation after the completion of the measurement period will not impact the 50% of STI that is paid in cash.

STI recipients who resign after the completion of the measurement period will be subject to good leaver / bad leaver provisions. An employee may forfeit their Indeterminate Rights if they

cause, resigns upon being asked to do so or an ex-employee who acts against the interests of the company.

STI awards may be determined at the discretion of the Board in the case of either resignation or termination due to serious illness or disability.

x. Change of control

The Board has determined that in the event of a Change of Control (including a takeover), Indeterminate Rights will vest on a pro-Performance Period that has elapsed at the date of the change of control. The Board retains discretion to vary this approach if it considers it would generate an inappropriate outcome.

xi. Profit gate

be at least 85% of budget in order for STI to be awarded.

xii. Individual performance gate

the following scale:

Does not meet expectations.

Meets expectations.

Exceeds expectations.

The Board will have discretion to vary award outcomes in the circumstances that the outcomes would otherwise be inappropriate.


xiii. Fraud or gross misconduct

All entitlements in relation to the Measurement Period will be forfeited by a participant if the Board forms the view that a participant has committed fraud, defalcation or gross misconduct in relation to the Company.

xiv. Clawback policy

The Board has implemented a Clawback Policy which provides for the potential forfeiture of the unvested equity based STI entitlements in the event of a material misstatement in the

holding lock period.

The Clawback policy only applies to the Indeterminate Rights awarded from STI and does not apply to the cash portion of STI that has already been paid to participants.

xv. STI award opportunities

The FY2020 STI award opportunities are contained in the STI KPI target and outcomes section on page 44.

IV. Long term incentive (LTI) policy

The LTI policy of the Company is to set a component of annual remuneration of executives to be at risk, payable in equity in the Company and based on an assessment of long term performance over not less than three years. A share disposal restriction applies for one year from the expiry of the performance measurement period which extends the effective remuneration deferral to a total of four years.

The Board has conducted a review of the LTI plan and a new plan was introduced from FY2019 onwards with details disclosed below:

i. Purpose

The purpose of the LTI Plan is to incentivise Senior Executives to deliver long term Group performance that will lead to sustainable superior returns for shareholders and to modulate the remuneration of Senior Executives relative to this performance.

ii. Form of incentive

The LTI is a grant of Indeterminate Performance Rights that vest based on an assessment of performance against objectives over a defined Measurement Period. No dividends are payable nor accrued on Performance Rights which are unvested.

iii. Measurement period

The Measurement Period is three financial years.

iv. LTI grant

The number of LTI Rights granted are calculated with reference to the stretch (maximum) LTI value divided by the volume weighted average closing share price in the first month of the measurement period less the expected value of dividends that will not accrue to Rights holders (Rights are not eligible to receive dividends).

Details of the FY2020 LTI grant are contained on page 54.



v. FY2018 measures of long term performance

The Company used two long term performance measures for FY2018:

Relative Total Shareholder Return (rTSR) as an external measure of performance.

Return on Invested Capital (ROIC) as an internal measure of performance.

vi. FY2019 & FY2020 measures of long term performance

The NRC undertook a comprehensive review of LTI metrics with the assistance of an external remuneration consultant and selected three equally weighted (i.e. 1/3 each) measures of long term performance for the FY2019 and FY2020 LTI plans:

Indexed Total Shareholder Return (iTSR).

Earnings per Share Growth (EPSG).

Return on Equity (ROE).

Metrics are set so that Target performance is expected to be achieved 50 60% of the time and Stretch or Maximum performance is expected to be achieved 10 20% of the time. The metrics are disclosed below:

vii. Total shareholder return (TSR) measure

The Board believes that TSR is the measure that has the strongest alignment with shareholders.

The FY2019 and FY2020 grants were offered based on iTSR, which sets an absolute TSR premium to indexed TSR outcomes, and avoids windfall gains / (losses) from changes in broad market movements in share prices.

Industrials Total Return Index.

in Shares) during the Measurement Period. Share price appreciation is measured utilising a 1 month VWAP at the beginning and the end of the measurement period (i.e. July in year 1 and June in year 3).

viii. Earnings per share growth (EPSG) measure

EPSG is an internal measure of performance which the Board encourages management to focus on. therefore highly relevant.

EPSG will be calculated by dividing EPS in the final year of the 3 year measurement period by the EPS in the last financial year prior to the 3 year measurement period. EPSG is converted into a cumulative annual growth rate (CAGR) for the purposes of the vesting scale.

EPS will equal Basic EPS as reported in the financial accounts.

Actual EPSG results will be compared against internal targets set by the Board.


ix. Return on equity (ROE) measure

Sustainability of ROE is a key element of creating sustainable shareholder wealth and hence ROE was adopted to help ensure that this is taken into account by management. ROIC was used previously however it was decided that ROE is more easily understood by both internal and external stakeholders, since it is subject to fewer accounting adjustments.

ROE will be calculated by dividing:

The average NPAT over the 3 year measurement period by

The day weighted average Contributed Equity + Retained Profits + Reserved Shares balance over the 3 year measurement period.

Actual ROE results are compared against internal targets set by the Board.

x. TSR gate

The Company TSR metric must be positive for the measurement period, to ensure that the LTI will not reward executives when shareholders have lost value. If the Company TSR metric is negative then none of the iTSR tranche will vest.

xi. Board discretion

The Board retains a discretion to adjust vesting outcomes in the circumstances that the outcomes from applying the vesting scales alone would be deemed to be inappropriate. In exercising this discretion, the Board is required to take into account the Company performance from the perspective of Shareholders over the relevant Measurement Period and consider whether specific participants:

engaged in any activities or communications that may cause harm to the operations or reputation of the Company or the Board,

took actions that ,

took excessive risks or contributed to or may otherwise benefit from unacceptable cultures within the Company,

exposed employees, the broader community or environment to excessive risks, including risks to health and safety.

The Board will also consider whether financial reports, which would unduly increase any award under the scheme.

xii. Vesting of performance rights

Performance Rights meeting the performance hurdles will vest at the end of the measurement period.

Participants are not required to make any payments at grant or at vesting.

xiii. Holding period

A one year holding period applies to all vesting performance rights:

Recipients are permitted to exercise their rights in order to receive shares, however

Recipients are prevented from selling their shares during the holding period.

This effectively extends the incentive period to four years and increases the accumulation of equity by executives to strengthen their alignment with shareholders.



xiv. Specified disposal restrictions

Performance Rights may not be disposed of or otherwise dealt with prior to exercise.

All shares acquired by Participants as a consequence of exercising vested Performance Rights, shall be subject to a dealing restriction Share Trading Policy and insider trading restrictions.

xv. Cessation of employment during a measurement period

A Participant who resigns prior to the elapsing of the Measurement Period in respect of which the grant is made will forfeit their entire unvested Performance Rights grant.

The Board may exercise its discretion to award some proportion of LTI under certain circumstances including consideration of whether the KMP was a good leaver up to the point of vesting.

Vested rights already held by a Participant are not forfeited.

xvi. Clawback policy

The Board may determine that a Participant found to have harmed the interests of the Company or its Shareholders, will forfeit some or all of their unvested entitlements at any time. This includes fraud, defalcation, joining a competitor etc.

Unvested Performance Rights held that are not forfeited, will be retained for testing against the vesting conditions at the normal time.

xvii. Change of control of the company

Target LTI will vest in proportion to the portion of the measurement period that has elapsed in the event that a change of control of the Company occurs.

The LTI will be valued based upon the value of the share price immediately before the change of control event occurs.


5. Executive KMP remuneration

I. FY2020 award opportunities

i. Target remuneration

The table below depicts the Target remuneration for KMP in FY2020 including:

The Total Fixed Remuneration,

STI award opportunity if Target STI KPI results are achieved,

LTI award opportunity if Target LTI results are achieved.

Target awards are applied to Total Fixed Remuneration.

ii. Stretch (Maximum) remuneration

The table below depicts the Stretch (Maximum) remuneration for KMP in FY2020 including:

The Total Fixed Remuneration

STI award opportunity if Stretch STI KPI results are achieved

LTI award opportunity if Stretch LTI results are achieved

Stretch awards are applied to Total Fixed Remuneration.

KMP TFR STI Opportunity LTI Opportunity Total

Target $ Target $

Mr David Singleton 1,093,833$ 60% 656,300$ 40% 437,533$ 2,187,666$

Mr Greg Jason 568,006 40% 227,202 35% 198,802 994,011

Mr Craig Perciavalle 1,092,173 30% 327,652 50% 546,087 1,965,911

Mr Patrick Gregg 510,000 40% 204,000 35% 178,500 892,500

% of Total

Mr David Singleton 50% 30% 20% 100%

Mr Greg Jason 57% 23% 20% 100%

Mr Craig Perciavalle 56% 17% 28% 100%

Mr Patrick Gregg 57% 23% 20% 100%

KMP TFR STI Opportunity LTI Opportunity Total

Stretch $ Stretch $

Mr David Singleton 1,093,833$ 90% 984,450$ 80% 875,066$ 2,953,349$

Mr Greg Jason 568,006 60% 340,804 70% 397,604 1,306,414

Mr Craig Perciavalle 1,092,173 60% 655,304 100% 1,092,173 2,839,650

Mr Patrick Gregg 510,000 60% 306,000 70% 357,000 1,173,000

% of Total

Mr David Singleton 37% 33% 30% 100%

Mr Greg Jason 43% 27% 30% 100%

Mr Craig Perciavalle 38% 24% 38% 100%

Mr Patrick Gregg 43% 27% 30% 100%



II. CEO remuneration

This chart depicts the Minimum, Target and Maximum remuneration opportunity that was available to the CEO and the breakdown between fixed remuneration (TFR) and variable remuneration (STI and LTI).

FY2020 CEO Remuneration

FY2019 CEO Remuneration

37%

50%

100%

33%

30%

30%

20%

$2,953,349

$2,187,666

$1,093,833

$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000

Stretch (Maximum)

Target

Minimum

Legend Fixed STI LTI

37%

50%

100%

33%

30%

30%

20%

$2,978,224

$2,206,092

$1,103,046

$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000

Stretch (Maximum)

Target

Minimum

Legend Fixed STI LTI


III. STI targets and outcomes

The following KPI were selected because they were the most significant matters for each of the KMP that were expected to contribute to the success of the Company during FY2020, given the business plans approved by the Board at the commencement of the financial year.

Chief Executive Officer - Mr David Singleton

Actual Performance Targets

Measures Weight Below Stretch Award Threshold Target Stretch Actual

Group EBIT 20% 100% $ 105 m $ 112 m $ 120 m $ 130 m

Group Free Cashflow 20% 100% $ 35 m $ 53 m $ 73 m $ 139 m

Australasia EBIT margin 10% - 7.6% 7.6% 9.0% 6.2%

Group Order Intake 27% 88% Further detail is provided below

Business Development 18% 86% Further detail is provided below

Overhead Cost Reduction 5% 100% Further detail is provided below

Total 100% 84%

Chief Financial Officer - Mr Greg Jason



Group EBIT 30% 100% $ 105 m $ 112 m $ 120 m $ 130 m

Group Free Cashflow 10% 100% $ 35 m $ 53 m $ 73 m $ 139 m

Group Order Intake 20% 88% Further detail is provided below

Individual Targets 40% 66% Further detail is provided below

Total 100% 84%

President USA - Mr Craig Perciavalle



USA EBIT (USD) 20% 67% $ 75 m $ 79 m $ 86 m $ 82 m

USA Free Cashflow (USD) 20% 100% $ 117 m $ 130 m $ 143 m $ 145 m

Sustainment Revenue (USD) 15% 100% $ 151 m $ 168 m $ 185 m $ 195 m

Sustainment Growth 10% 70% Further detail is provided below

Productivity 20% 100% Further detail is provided below

USA Order Intake 15% 70% Further detail is provided below

Total 100% 86%

Chief Operating Officer - Australasia - Mr Patrick Gregg



Australasia EBIT margin 25% - 7.6% 7.6% 9.0% 6.2%

Australasia Free Cashflow 15% 100% $ (97) m $ (87) m $ (77) m $ (43) m

Australasia Order Intake 20% 100% Further detail is provided below

Individual Targets 40% 88% Further detail is provided below

Total 100% 70%



Chief Executive Officer - Mr David Singleton

Growth & Order Intake KPI (88% Award)

Multiple ship awards (commercial in confidence).

Significant progress on new defence vessel programs.

Growth in USA sustainment revenue by 20%.

Business Development KPI (86% Award)

Future development of US business.

Future continuity of Henderson operations.

Overhead Cost Reduction KPI (100% Award)

Corporate & Australasia overhead reduction program.

Chief Financial Officer - Mr Greg Jason


As per the CEO.

Major Personal KPI (66% Award)

Corporate & Australasia overhead reduction program.

Deliver CCPB funding structure.

Governance improvements.

President USA - Mr Craig Perciavalle

Sustainment Growth (70% Award)

Growth in USA sustainment revenue by 20%.

Productivity (100% Award)

LCS & EPF Productivity targets met - (commercial in confidence).

USA Order Intake (70% Award)

Vessel design awards for Offshore Patrol Cutter & Unmanned systems.

Steel shipbuilding capability grant under US Defense Production Act.

Chief Operating Officer - Australasia - Mr Patrick Gregg


As per the CEO (Australasia only).

Major Personal KPI (88% Award)

Australasia cost & productivity performance - (commercial in confidence).

Deliver Australasia vessel programs to quality and schedule (noting COVID-19 impact).

Develop world class procurement against metrics.

Enterprise Resource Planning software implementation progress.

Future continuity of Henderson operations.

Maintain safety standards in bigger and broader based business.


IV. LTI grant and outcomes

i. Performance rights grant

2,363,476 Performance Rights were granted to KMP in FY2018, who were still employed by Austal at 30 June 2020.

ii. Measurement period

100% of the Performance Rights granted in FY2018 had a 3 year Measurement Period from 1 July 2018 30 June 2020.

iii. FY2018 LTI vesting performance

The Return on Invested Capital (ROIC) and Relative Total Shareholder Return (rTSR) performance criteria relating to the FY2018 Performance Rights grant to KMP are detailed below. The actual vesting performance is indicated by the red dot. percentile ranking against the Market TSR results. The Market TSR references the XAOA All Ordinaries Total Return Index. ROIC is calculated by dividing Net Operating Profit after Tax (NOPAT) by average Invested Capital over the measurement period.

iv. FY2018 LTI vesting awards

Relative TSR = Austal TSR Percentile of Market ROIC = NOPAT / Invested Capital

XAOA - All Ordinaries Total Return Index

Threshold

Target

Stretch

100%

0%

25%

50%

75%

100%

0% 25% 50% 75% 100%

Award

XAOA TSR Percentile

Relative TSR

Award

Threshold

Target

Stretch

100%

0%

25%

50%

75%

100%

0% 2% 4% 6% 8% 10% 12%

Award

ROIC

ROIC

Award

Vesting Value @

KMP Tranche Weight Granted % Number Grant Date

VWAP @ Grant Date 1.80$

Mr David Singleton rTSR 40% 238,612 100% 238,612 428,604$

ROIC 60% 357,918 100% 357,918 642,907

Total 596,530 100% 596,530 1,071,511$

Mr Greg Jason rTSR 40% 82,704 100% 82,704 148,556$

ROIC 60% 124,055 100% 124,055 222,833

Total 206,759 100% 206,759 371,389$

Mr Craig Perciavalle rTSR 40% 94,725 100% 94,725 170,149$

ROIC 60% 142,086 100% 142,086 255,221

Total 236,811 100% 236,811 425,369$

Mr Patrick Gregg rTSR 40% 71,578 100% 71,578 128,571$

ROIC 60% 107,367 100% 107,367 192,857

Total 178,945 100% 178,945 321,428$



V. Realised remuneration (non-statutory disclosure)

The Realised Remuneration tables below are provided to convey the actual remuneration awarded to KMP during FY2020 and FY2019 rather than the statutory disclosure required under the accounting standards and includes:

The portion of Total Fixed Remuneration (TFR) paid in cash.

The portion of TFR converted and granted as Share Rights.

The portion of TFR contributed to superannuation plans or pension schemes.

STI awarded but not yet paid for results on page 44.

The value of LTI rights vesting following the conclusion of the relevant Measurement Period using the Volume Weighted Average Price (VWAP) at the Grant Date.

The CEO and the CFO had a leave loading entitlement embedded in their employment contracts. The leave loading entitlement was terminated during FY2020. All accrued leave loading entitlements were paid to Mr Singleton and Mr Jason during FY2020 and are disclosed in the realised and statutory remuneration tables. Future leave loading entitlements were converted into a TFR increase for FY2021 onwards of $14,724 for Mr Singleton and $7,651 for Mr Jason.

FY2020

Total Fixed Remuneration Legacy Buy Out 1 FY2020 STI Awarded LTI Total

Super-

Share annuation / Leave Indeterminate FY2018

KMP Cash Rights Pension Other Total Loading Cash Rights Total Vesting

Value @ Grant VWAP2 1.80$

Mr David Singleton 1,072,830$ - $ 21,003$ - $ 1,093,833$ 45,278$ 413,016$ 413,016$ 826,032$ 1,071,511$ 3,036,654$

Mr Greg Jason 547,003 - 21,003 - 568,006 25,497 143,139 143,139 286,278 371,389 1,251,170

Mr Craig Perciavalle 894,188 - 109,230 88,755 1,092,173 - 505,395 - 505,395 425,369 2,022,937

Mr Patrick Gregg 488,998 - 21,002 - 510,000 - 107,100 107,100 214,200 321,428 1,045,628

Total 3,003,019$ - $ 172,238$ 88,755$ 3,264,012$ 70,775$ 1,168,650$ 663,255$ 1,831,905$ 2,189,697$ 7,356,389$

% of Total

Mr David Singleton 36.0% 1.5% 27.2% 35.3% 100.0%

Mr Greg Jason 45.4% 2.0% 22.9% 29.7% 100.0%

Mr Craig Perciavalle 54.0% - 25.0% 21.0% 100.0%

Mr Patrick Gregg 48.8% - 20.5% 30.7% 100.0%

FY2019

Total Fixed Remuneration Legacy Buy Out FY2019 STI Awarded LTI Total

Super-

Share annuation / Leave Indeterminate FY2017

KMP Cash Rights Pension Other Total Loading Cash Rights Total Vesting

Value @ Grant VWAP2 1.10$

Mr David Singleton 747,448$ 334,767$ 20,831$ - $ 1,103,046$ - $ 372,156$ 372,156$ 744,312$ 1,310,002$ 3,157,360$

Mr Greg Jason 496,397 50,950 20,531 - 567,878 - 127,237 127,237 254,474 288,398 1,110,750

Mr Craig Perciavalle3 797,203 - 97,154 67,478 961,835 - 478,322 - 478,322 441,692 1,881,849

Mr Patrick Gregg 447,173 - 35,827 - 483,000 - 109,862 109,862 219,724 - 702,724

Total 2,488,221$ 385,717$ 174,343$ 67,478$ 3,115,759$ - $ 1,087,577$ 609,255$ 1,696,832$ 2,040,092$ 6,852,683$

% of Total

Mr David Singleton 34.9% - 23.6% 41.5% 100.0%

Mr Greg Jason 51.1% - 22.9% 26.0% 100.0%

Mr Craig Perciavalle 51.1% - 25.4% 23.5% 100.0%

Mr Patrick Gregg 68.7% - 31.3% - 100.0%

1. Refer to the explanation below.

2. Value @ Grant VWAP is the Volume Weighted Average Share Price utilised for the respective LTI grant.

3. Mr Perciavalle's prior year disclosure in 'Other' TFR has been updated to include $33,897 of healthcare related post-employment benefits.


VI. Statutory remuneration disclosure

The following table outlines the remuneration received by Executive KMP during FY2020 and FY2019, prepared according to statutory disclosure requirements and accounting standards:

The CEO and the CFO had a leave loading entitlement embedded in their employment contracts. The leave loading entitlement was terminated during FY2020. All accrued leave loading entitlements were paid to Mr Singleton and Mr Jason during FY2020 and are disclosed in the realised and statutory remuneration tables. Future leave loading entitlements were converted into a TFR increase for FY2021 onwards of $14,724 for Mr Singleton and $7,651 for Mr Jason.

FY2020 Fixed Remuneration Legacy Buy Out 1 Variable Remuneration Other Total

Super- Other LTI Long

Share annuation / Monetary Leave STI Accounting Service Leave

KMP Salary2 Rights Pension Benefits Total Loading Accrued Expense3Accrued

Mr David Singleton4 983,402$ - $ 21,003$ - $ 1,004,405$ 45,278$ 826,032$ (41,090)$ 14,071$ 1,848,696$

Mr Greg Jason 550,834 - 21,003 - 571,837 25,497 286,278 353,673 13,200 1,250,485

Mr Craig Perciavalle 913,712 - 109,230 88,755 1,111,697 - 505,395 556,346 - 2,173,438

Mr Patrick Gregg 508,344 - 21,002 - 529,346 - 214,200 309,153 3,959 1,056,658

Total 2,956,292$ - $ 172,238$ 88,755$ 3,217,285$ 70,775$ 1,831,905$ 1,178,082$ 31,230$ 6,329,277$

% of Total

Mr David Singleton 54.3% 2.4% 44.7% (2.2%) 0.8% 100.0%

Mr Greg Jason 45.7% 2.0% 22.9% 28.3% 1.1% 100.0%

Mr Craig Perciavalle 51.1% - 23.3% 25.6% - 100.0%

Mr Patrick Gregg 50.1% - 20.3% 29.3% 0.4% 100.0%

FY2019 Fixed Remuneration Legacy Buy Out Variable Remuneration Other Total

Super- Other LTI Long

Share annuation / Monetary Leave STI Accounting Service Leave

Salary2 Rights Pension Benefits Total Loading Accrued Expense3Accrued

Mr David Singleton4 814,049$ 334,767$ 20,831$ - $ 1,169,647$ - $ 744,312$ 1,776,504$ 18,231$ 3,708,694$

Mr Greg Jason 493,029 50,950 20,531 - 564,510 - 254,474 420,664 9,350 1,248,998

Mr Craig Perciavalle5 821,011 - 97,154 67,478 985,643 - 478,322 672,126 - 2,136,091

Mr Patrick Gregg 478,758 - 35,827 - 514,585 - 219,724 218,086 8,050 960,446

Total 2,606,847$ 385,717$ 174,343$ 67,478$ 3,234,385$ - $ 1,696,832$ 3,087,380$ 35,631$ 8,054,229$

% of Total

Mr David Singleton 31.5% - 20.1% 47.9% 0.5% 100.0%

Mr Greg Jason 45.2% - 20.4% 33.7% 0.7% 100.0%

Mr Craig Perciavalle 46.1% - 22.4% 31.5% - 100.0%

Mr Patrick Gregg 53.6% - 22.9% 22.7% 0.8% 100.0%

1. Refer to the explanation below.

2. Salary represents cash-based salary expensed during the reporting period including annual leave provision adjustments and therefore may not equal the cash received by the KMP.

3. The LTI expense represents the portion of the independent valuation of active LTI plans expensed through the Profit and Loss in accordance with AASB 2.

4. Mr Singleton's FY2019 and FY2020 LTI grants were forfeited in accordance with his resignation in June 2020 and the life to date Profit and Loss expense of these plans were reversed.

5. Mr Perciavalle's prior year disclosure in 'Other Monetary Benefits' has been updated to include $33,897 of healthcare post-employment benefits and the movemement in leave balances of $23,808.



The Corporations Act mandate the manner in which the cost of all forms of remuneration are disclosed within the Remuneration Report such as the following matters:

Share based payments expense for LTI plans represents the portion of the actuarial valuation of all relevant Performance Rights (grants across multiple years) expensed within the reporting period including adjustments for forfeiture and vesting outcomes for internal measures of performance.

Salary represents the amount expensed in the Profit and Loss statement during the reporting period which will be influenced by the number of leave days taken (e.g. salary and fees expensed will be higheperiod because the expense will represent the 12 months worked plus the value of leave accrued (e.g. 4 weeks in Australia)).

VII. Reconciliation of realised remuneration and statutory remuneration

The following table reconciles the realised remuneration received by Executive KMP during FY2020 and FY2019 with the statutory remuneration disclosures for those years.

FY2020 Remuneration Explanation of Variance

LTI Vesting Long Service Leave

Versus Leave Provision

KMP Realised Statutory Variance Expense Provision Movement Total

Mr David Singleton13,036,654$ 1,848,696$ 1,187,958$ 1,112,601$ (14,071)$ 89,428$ 1,187,958$

Mr Greg Jason 1,251,170 1,250,485 685 17,716 (13,200) (3,831) 685

Mr Craig Perciavalle 2,022,937 2,173,438 (150,501) (130,977) - (19,524) (150,501)

Mr Patrick Gregg 1,045,628 1,056,658 (11,030) 12,275 (3,959) (19,346) (11,030)

1. Mr Singleton's significant 'LTI Vesting Versus Expense' variance represents the difference between the FY2018 LTI grant fully vesting as shown in the

Realised Remuneration table and the reversal of the previously booked Share Based Payment expense in relation to the forfeited FY2019 and FY2020

grants within the Statutory Remuneration table.

FY2019 Remuneration Explanation of Variance

LTI Vesting Long Service Leave

Versus Leave Provision

KMP Realised Statutory Variance Expense Movement Movement Total

Mr David Singleton 3,157,360$ 3,708,694$ (551,334)$ (466,502)$ (18,231)$ (66,601)$ (551,334)$

Mr Greg Jason 1,110,750 1,248,998 (138,248) (132,266) (9,350) 3,368 (138,248)

Mr Craig Perciavalle 1,881,849 2,136,091 (254,242) (230,434) - (23,808) (254,242)

Mr Patrick Gregg 702,724 960,446 (257,722) (218,087) (8,050) (31,585) (257,722)


VIII. CEO Transition

i. Resignation of Mr David Singleton

In June 2020 Austal announced that its Chief Operating Officer (COO) Patrick Gregg will be promoted to the position of Chief Executive Officer (CEO) effective 1 January 2021, following a six month transition from current Managing Director and CEO David Singleton.

Mr Singleton will be eligible to receive an FY2021 STI of up to a maximum of 6 months TFR for achievement of the following objectives:

Subic Bay Acquisition

Progress Philippines Offshore Patrol Vessel Program

San Diego Dry Dock Strategy

Post LCS Strategy and USA Steel Shipbuilding Capability

Refresh Company Strategy

Effective transition to new CEO

ii. Appointment of Mr Patrick Gregg

remuneration from 1 January 2021 are included below:

Total Fixed Remuneration $875,000

Target STI award 45% / Stretch STI award 67.5%

Target LTI award 50% / Stretch LTI award 100%

6. Non-Executive Director remuneration

I. Application

The Non-Executive Director Remuneration Policy applies to Non-Executive Directors (NED) of the Company in their capacity as directors and as members of committees.

II. Fee policy

The fee policy is designed to ensure that remuneration is reasonable, appropriate, and produces outcomes that fall within the fee limit, at each point of being assessed.

i. Fee cap

The Remuneration for NED is managed within the aggregate fee limit (AFL) of $3,000,000 approved by shareholders of the Company. The cap has remained unchanged since listing on the Australian Securities Exchange (ASX) in 1998.

ii. Board & committee fees

Remuneration is composed of Board fees and Committee fees. Both fee types include superannuation to the extent applicable to the incumbent.

NED remuneration was externally benchmarked, and appropriate fee increases were provided at the 50th percentile (where 50% of the comparator group are above the median level and 50% are below the median level) for FY2020. This is the first time NED remuneration has been increased since 2016.

Remuneration for the current Chairman of the Board reflects his continued high level of contribution to the company and the Board. The Board increased the Chairman s FY2020 total remuneration fee to $210,000, inclusive of committee fees.

Committee fees recognise additional contributions to the work of the Board by members of committees. They are similarly referenced to the benchmark group as above.



iii. NED fee rates

The following table outlines the NED fee policy rates that were applicable:

iv. Termination benefits

Termination benefits are not paid to NED.

III. Share rights

The NED have agreed annually with the Company to receive 25% of their Board fees (excluding Committee fees) in the form of share rights in order to accumulate equity holdings up to the equivalent of one year of Board fees (excluding Committee fees). The issuance of share rights to NED was approved by shareholders at the 2018 and 2019 Annual General Meetings.

The Chairman of the Board does not presently receive share rights because of his significant shareholding in the Company.

FY2020 Role

Chair Deputy Chair Member

Main Board 200,000$ 110,000$ 100,000$

Audit & Risk Committee 20,000 N/A 10,000

Nomination & Remuneration Committee 20,000 N/A 10,000

FY2019 Role

Chair Deputy Chair Member

Main Board 192,500$ N/A 95,000$

Audit & Risk Committee 20,000 N/A 10,000

Nomination & Remuneration Committee 15,000 N/A 7,500


IV. NED remuneration in FY2020

The following table outlines the remuneration received by NED of the Company during FY2020 and the previous year, prepared according to statutory disclosure requirements and applicable accounting standards:

FY2020 Board Fees Committee Fees Total

Super- Share Super-

Cash annuation Rights Total Cash annuation Total

Mr John Rothwell 182,648$ 17,352$ - $ 200,000$ 9,132$ 868$ 10,000$ 210,000$

Mr Giles Everist 91,324 8,676 - 100,000 27,397 2,603 30,000 130,000

Mrs Sarah Adam-Gedge 75,723 7,194 27,083 110,000 29,456 126 29,583 139,583

Mr Chris Indermaur 68,493 6,507 25,000 100,000 18,626 1,374 20,000 120,000

Total 418,189$ 39,728$ 52,083$ 510,000$ 84,613$ 4,970$ 89,583$ 599,583$

FY2019 Board Fees Committee Fees Total

Super- Share Super-

Cash annuation Rights Total Cash annuation Total

Mr John Rothwell 175,799$ 16,701$ - $ 192,500$ 6,849$ 651$ 7,500$ 200,000$

Mr Giles Everist 65,068 6,182 23,750 95,000 25,114 2,386 27,500 122,500

Mrs Sarah Adam-Gedge 65,068 6,182 23,750 95,000 20,758 1,972 22,731 117,731

Mr Chris Indermaur 1

45,681 4,340 15,833 65,854 6,355 604 6,959 72,812

Mr Jim McDowell 2 10,845 1,030 3,958 15,833 3,805 361 4,167 20,000

Total 362,461$ 34,434$ 67,292$ 464,187$ 62,882$ 5,974$ 68,856$ 533,043$

1. Mr Chris Indermaur became a NED in October 2018.

2. Mr Jim McDowell resigned in August 2018.



8. Equity instruments held by KMP

I. FY2018 performance rights vesting

Further information relating to the FY2018 Performance Rights vesting is provided on page 46.

II. FY2019 performance rights

i. Performance rights

714,374 Performance Rights were granted to KMP in FY2019, who were still employed by Austal and whose rights were not lapsed, forfeited or vested at 30 June 2020.


100% of the Performance Rights granted in FY2019 have a 3 year Measurement Period from 1 July 2018 30 June 2021.

iii. Performance criteria

The performance criteria relating to the FY2019 grant of Performance Rights to KMP are detailed below:

Threshold

Indexed TSR = Austal TSR Premium to Market ROE = NPAT / Equity (Excluding Reserves) EPSG = EPS (Final Year) / CAGR EPS (Base Year)

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 5% 10%

Award

TSR Premium to market

Indexed TSR

Award

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Award

ROE

ROE

Award

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 10% 20% 30%

Award

EPSG

EPSG

Award


III. FY2020 performance rights grant

i. Performance rights grant

Performance rights granted to KMP in FY2020 are depicted in the table below.

The Fair Value per right has been determined by an independent valuer in accordance with AASB 2 Share Based Payments and does not match the Stretch LTI opportunity as detailed earlier in the report.

422,925 Performance Rights were granted to KMP in FY2020, who were still employed by Austal and whose rights were not lapsed, forfeited or vested at 30 June 2020.


100% of the Performance Rights granted in FY2020 have a 3 year Measurement Period from 1 July 2019 30 June 2022.

iii. Performance criteria

The performance criteria relating to the FY2020 grant of Performance Rights to KMP are detailed below:

Rights granted Value @

Name iTSR ROE EPSG Total grant date

Fair Value per right 2.33$ 3.81$ 3.81$ 3.31$ 3.31$

Mr David Singleton1 76,410 76,410 76,411 229,231 759,519$

Mr Greg Jason 34,718 34,718 34,720 104,156 345,105

Mr Craig Perciavalle 75,082 75,082 75,084 225,248 746,323

Mr Patrick Gregg 31,173 31,173 31,175 93,521 309,867

Total 217,383 217,383 217,390 652,156 2,160,814$

1. Mr Singleton's FY2020 LTI grant was forfeited in accordance with his resignation in June 2020.

Threshold

Indexed TSR = Austal TSR Premium to Market ROE = NPAT / Equity (Excluding Reserves) EPSG = EPS (Final Year) / CAGR EPS (Base Year)

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 5% 10%

Award

TSR Premium to market

Indexed TSR

Award

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Award

ROE

ROE

Award

Threshold

Target

Stretch

0%

25%

50%

75%

100%

0% 10% 20% 30%

Award

EPSG

EPSG

Award



IV. TFR share rights

Details of Share Rights earned during the period and provided to KMP in FY2020 are shown below and further information is provided in Note 34.

These Share Rights are in lieu of TFR normally paid in cash and are not a bonus nor performance based. The measurement date for the Share Rights is the VWAP of the last 5 trading days of each month. The share rights provided to the NED were approved by Shareholders during the 2019 Annual General Meeting.

Average fair

KMP Earned value per right Fair value

Mrs Sarah Adam-Gedge 7,468 $ 3.63 27,083$

Mr Chris Indermaur 6,884 3.63 25,000


V. Changes in equity held by KMP

FY2020 Movements

Balance at Lapsed / Bought Balance at

30 June 2019 Granted Vested Exercised Forfeited (Sold) 30 June 2020 Vested Unvested

Executives

Mr David Singleton

Shares 28,600 - - 1,194,121 - - 1,222,721 1,222,721 -

Share Rights 1,819,783 - 596,530 (1,194,121) - - 1,222,192 1,222,192 -

Performance Rights 1,088,932 229,231 (596,530) - (721,633) - - - -

Indeterminate Rights1 - 106,251 - - - - 106,251 106,251 -

Total 2,937,315 335,482 - - (721,633) - 2,551,164 2,551,164 -

Mr Greg Jason

Shares 59,089 - - 310,491 - (106,693) 262,887 262,887 -

Share Rights 310,491 - 206,759 (310,491) - - 206,759 206,759 -

Performance Rights 427,717 104,156 (206,759) - - - 325,114 - 325,114


Total 797,297 140,820 - - - (106,693) 831,424 506,310 325,114

Mr Craig Perciavalle

Shares 112,444 - - 402,621 - (313,755) 201,310 201,310 -

Share Rights 402,621 236,811 (402,621) - - 236,811 236,811 -

Performance Rights 539,974 225,248 (236,811) - - - 528,411 528,411 -

Total 1,055,039 225,248 - - - (313,755) 966,532 966,532 -

Mr Patrick Gregg

Shares - - - - - - - - -

Share Rights - - 178,945 - - - 178,945 178,945 -

Performance Rights 369,198 93,521 (178,945) - - - 283,774 - 283,774


Total 369,198 123,927 - - - - 493,125 209,351 283,774


Mr John Rothwell

Shares 32,307,692 - - - - - 32,307,692 32,307,692 -

Total 32,307,692 - - - - - 32,307,692 32,307,692 -

Mr Giles Everist

Shares 10,000 - - 20,441 - - 30,441 30,441 -

Share Rights 20,441 - - (20,441) - - - - -

Total 30,441 - - - - - 30,441 30,441 -

Mrs Sarah Adam-Gedge

Shares 10,000 - - - - - 10,000 10,000 -

Share Rights 20,441 7,468 - - - - 27,909 27,909 -

Total 30,441 7,468 - - - - 37,909 37,909 -

Mr Chris Indermaur

Share Rights 6,857 6,884 - - - - 13,741 13,741 -

Total 6,857 6,884 - - - - 13,741 13,741 -

1. Indeterminate rights are contractual rights to the value of a share with a minimum holding period of 3 years irrespective of continued employment.



VI. Minimum equity holdings

Some KMP and all NED are required to accumulate and maintain a minimum level of equity holding with value equivalent to a specified percentage of annual TFR as detailed in the table below:

Balance at Value @ FY2020 Equity Holding % of TFR Target

30 Jun 2020 30 Jun 2020 TFR 30 Jun 2020 Target Introduced

Value / share $ 3.23

Executives

Mr David Singleton 2,551,164 $ 8,240,260 $ 1,093,833 753% 100% Feb 2016

Mr Greg Jason 506,310 1,635,381 568,006 288% 50% Sep 2017

Mr Craig Perciavalle 966,532 3,121,898 1,092,173 286% - -

Mr Patrick Gregg1209,351 676,204 510,000 133% - -

Balance at Value @ FY2020 Equity Holding % of TFR Target

30 Jun 2020 30 Jun 2020 Board Fees 2 30 Jun 2020 Target Introduced


Mr John Rothwell 32,307,692 $ 104,353,845 $ 200,000 52177% 100% Nov 2017

Mr Giles Everist 30,441 98,324 100,000 98% 100% Nov 2017

Mrs Sarah Adam-Gedge 37,909 122,446 110,000 111% 100% Nov 2017

Mr Chris Indermaur 13,741 44,383 100,000 44% 100% Oct 2018

1. Mr Gregg will be required to maintain a minimum level of equity holding at a value equivalent to 1 year TFR once be becomes CEO.

2. Includes Board Fees and excludes Committee Fees


9. Other related matters

I. Board composition

The NRC reviews the structure, size and composition of the Board annually, taking inputs from investors and other independent advisors received during the year into account. The NRC has recommended that the current practice of maintaining three independent NED on the Board should remain following the FY2020 review.

The Committee also undertook an annual review of the position of Chairman at Austal, in part because he is aged over 70 years. The Board (excluding the Chairman) unanimously agreed that the

together with his demonstrated high level of commitment, meant that he remains a significant asset to the Group and he was requested to remain as Chairman, to which he has agreed.

During the year Mrs Sarah Adam-Gedge was appointed as Deputy Chair of the Board.

II. Details of contractual provisions for KMP

Austal may choose to terminate the contracts immediately by making a payment equal to the Group Notice Period fixed remuneration in lieu of notice. Executives are not entitled to this termination payment in the event of termination for serious misconduct or other nominated circumstances.

Executives will be entitled to the payment of any fixed remuneration calculated up to the termination date, any leave entitlement accrued at the termination date and any payment or award of STI or LTI permitted under the remuneration policy upon termination of employment is described in the relevant sections of this report.

All NED enter into a service agreement with the Company in the form of a letter of appointment on appointment to the Board. The letter summarises the Board policies and terms, including compensation relevant to each director. The appointment letters specify a term of three years before each NED is required to be put forward for re-election in accordance with regulatory requirements.

III. Other transactions with KMP

There were no transactions involving KMP other than compensation and transactions concerning shares and performance rights as discussed in other sections of the Remuneration Report.

Termination

Name Employer Duration Group Individual Benefits 1

Mr David Singleton Austal Limited Unlimited 3 months 3 months 3 months

Mr Greg Jason Austal Limited Unlimited 12 weeks 12 weeks 12 weeks

Mr Craig Perciavalle Austal USA LLC Unlimited None None None

Mr Patrick Gregg Austal Ships Pty Ltd Unlimited 3 months 3 months 3 months

1. Termination Benefit Limit under the Corporations Act is 12 months of the average prior 3 years salary

unless Shareholder approval is obtained.

Termination Notice Period



IV. Use of external remuneration consultants

The Board approved and engaged an external remuneration consultant to provide KMP remuneration recommendations and advice during the reporting period. The consultants and the amount payable for the information and work that led to their recommendations are listed below:

i. Godfrey Remuneration Group Pty Limited (GRG)

GRG were engaged for the following services during FY2020:

NED and Executive Remuneration Recommendations.

Total fees $77,550 excluding GST.

ii. Independence from Executive KMP

The Board is satisfied that the KMP remuneration recommendations received were free from undue influence from KMP to whom the recommendations related for the following reasons:

the policy for engaging external remuneration consultants is being adhered to and is operating as intended,

the Board has been closely involved in all dealings with the external remuneration consultants,

each KMP remuneration recommendation received during the year was accompanied by a legal declaration from the consultant to the effect that their advice was provided free from undue influence from the KMP to whom the recommendations related.

End of Remuneration Report

60 Austal Limited | Auditor independence

Auditor independence

The Board of Directors

Austal Limited

100 Clarence Beach Rd

Henderson, WA

6166, Australia

21 August 2020

Dear Board Members,

Austal Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following

declaration of independence to the Directors of Austal Limited.

As lead audit partner for the audit of the financial statements of Austal Limited for the year ended

30 June 2020, I declare that to the best of my knowledge and belief, there have been no

contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the

audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely,

DELOITTE TOUCHE TOHMATSU

A T Richards

Partner

Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network

Deloitte Touche Tohmatsu

ABN 74 490 121 060

Brookfield Place, Tower 2

123 St Georges Terrace

Perth WA 6000

GPO Box A46

Perth WA 6837 Australia

Tel: +61 8 9365 7000

Fax: +61 8 9365 7001

www.deloitte.com.au


Austal Limited | Consolidated statement of profit and loss and other comprehensive income for the year ended 30 June 2020 61

Consolidated statement of profit and loss and other

comprehensive income for the year ended

30 June 2020

2020 2019

Notes 000 000

Continuing operations

Revenue 4 2,086,001$ 1,851,021$

Cost of sales (1,846,707) (1,661,113)

Gross Profit 239,294$ 189,908$

Other income and expenses 5 9,771$ 13,301$

Administration expenses (94,793) (92,265)

Marketing expenses (23,876) (18,149)

Finance income 1 5 1,384 1,053

Finance costs 5 (8,267) (8,284)

Profit / (loss) before income tax 123,513$ 85,564$

Income tax benefit / (expense) 9 (34,535)$ (24,180)$

Profit / (loss) after tax 88,978$ 61,384$

Other comprehensive income (OCI)

Amounts that may subsequently be reclassified to profit and loss:

Cash flow hedges

- Net gain / (loss) 4,907$ (1,693)$

- Income tax benefit / (expense) (1,474) 460

3,433$ (1,233)$

Foreign currency translations

- Net gain / (loss) 9,245$ 27,912$

9,245$ 27,912$

Amounts not to be reclassified to profit and loss in subsequent periods:

Asset revaluation reserve

- Net gain / (loss) 42,556$ 2,103$

- Income tax benefit / (expense) (10,713) (578)

31,843$ 1,525$

Other comprehensive income for the period 44,521$ 28,204$

Total comprehensive income for the year 133,499$ 89,588$

Earnings per share ($ per share)

Basic earnings per share 6 0.250$ 0.176$

Diluted earnings per share 6 0.247 0.173

1. Finance income was previously included within Revenue and has been reclassified below Gross Profit for the current and comparative period.

62 Austal Limited | Consolidated statement of financial position as at 30 June 2020

Consolidated statement of financial position as at

30 June 2020

2020 2019

Notes 000 000

Assets

Current

Cash and cash equivalents 10 396,667$ 275,665$

Inventories and work in progress 17 143,799 167,042

Trade and other receivables 15 144,217 225,268

Prepayments 11,444 9,480

Derivatives 26, 27 1,218 1,932

Income tax refundable 9 - 1,701

Total 697,345$ 681,088$

Non - current

Property, plant and equipment 19 610,199$ 588,384$

Intangible assets and goodwill 20 22,192 20,743

Investment in joint venture 31 1,729 1,729

Derivatives 26, 27 1,186 258

Right of use lease assets 2 9,736 -

Other financial assets 22 13,197 11,859

Other non-current assets 23 7,767 14,838

Deferred tax assets 9 4,757 8,402

Total 670,763$ 646,213$

Total 1,368,108$ 1,327,301$

Liabilities

Current

Interest bearing loans and borrowings 11 (8,719)$ (51,211)$

Progress payments received in advance 16 (94,502) (120,402)

Trade and other payables 18 (156,910) (202,308)

Provisions 24 (80,132) (85,305)

Derivatives 26, 27 (3,352) (8,992)

Income tax payable 9 (259) -

Lease liabilities 2 (2,627) -

Deferred grant income 14 (3,232) (6,445)

Total (349,733)$ (474,663)$

Non - current

Interest bearing loans and borrowings 11 (156,461)$ (122,543)$

Provisions 24 (2,521) (1,707)

Derivatives 26, 27 (6,026) (7,552)

Lease liabilities 2 (7,449) -

Deferred grant income 14 (54,046) (56,214)

Deferred tax liabilities 9 (43,129) (33,839)

Total (269,632)$ (221,855)$

Total (619,365)$ (696,518)$

Net assets 748,743$ 630,783$

Equity attributable to owners of the parent

Contributed equity 13 135,340$ 130,570$

Reserves 235,122 189,520

Retained earnings 378,281 310,693

Total 748,743$ 630,783$


Austal Limited | Consolidated statement of changes in equity for the year ended 30 June 2020 63

Consolidated statement of changes in equity for the

year ended 30 June 2020

Foreign

Currency Employee Cash Flow Common Asset

Issued Reserved Retained Transl'n Benefits Hedge Control Reval'n Total

Capital Shares 1 Earnings Reserve Reserve Reserve Reserve Reserve Equity

Equity at 1 July 2018 130,165$ (11,836)$ 270,530$ 82,190$ 3,977$ (5,789)$ (17,594)$ 93,935$ 545,578$

Comprehensive income

Profit for the year - $ - $ 61,384$ - $ - $ - $ - $ - $ 61,384$

Other comprehensive income - - - 27,912 - (1,233) - 1,525 28,204

Total - $ - $ 61,384$ 27,912$ - $ (1,233)$ - $ 1,525$ 89,588$

Other equity transactions

Shares issued for dividend reinvestment plan 1,922$ - $ - $ - $ - $ - $ - $ - $ 1,922$

Dividends - - (21,133) - - - - - (21,133)

Share based payments expense - - - - 5,975 - - - 5,975

Shares issued to employee share trust 454 (454) - - - - - - -

AGMSP shares sold 2 (2,763) 10,929 - - - - - - 8,166

Dividend retained in relation to AGMSP 2 13 95 - - - - - - 108

Tax expense on sale of AGMSP shares 2 (65) - - - - - - - (65)

Rights exercised 2,110 - - - (1,142) - - - 968

Transfer between reserves 4 - - 313 - (313) - - - -

Transfer between reserves 5 - - (401) - 401 - - - -

Remeasurement gain on retirement benefits - - - - (324) - - - (324)

Total 1,671$ 10,570$ (21,221)$ - $ 4,597$ - $ - $ - $ (4,383)$

Movement 1,671$ 10,570$ 40,163$ 27,912$ 4,597$ (1,233)$ - $ 1,525$ 85,205$

Equity at 30 June 2019 131,836$ (1,266)$ 310,693$ 110,102$ 8,574$ (7,022)$ (17,594)$ 95,460$ 630,783$

Comprehensive income

Profit for the year - $ - $ 88,978$ - $ - $ - $ - $ - $ 88,978$

Other comprehensive income - - - 9,245 - 3,433 - 31,843 44,521

Total - $ - $ 88,978$ 9,245$ - $ 3,433$ - $ 31,843$ 133,499$

Other equity transactions

Shares issued for dividend reinvestment plan 804$ - $ - $ - $ - $ - $ - $ - $ 804$

Dividends - - (21,390) - - - - - (21,390)

Share based payments expense - - - - 4,599 - - - 4,599

Shares issued to employee share trust 1,861 (1,861) - - - - - - -

Shares or proceeds transferred to beneficiaries (1,096) 1,771 - - (675) - - - -

Shares issued for vested performance rights 3,291 - - - (3,291) - - - -

Reclassification of long term incentives 6 - - - - 751 - - - 751

Remeasurement gain on retirement benefits - - - - (303) - - - (303)

Total 4,860$ (90)$ (21,390)$ - $ 1,081$ - $ - $ - $ (15,539)$

Movement 4,860$ (90)$ 67,588$ 9,245$ 1,081$ 3,433$ - $ 31,843$ 117,960$

Equity at 30 June 2020 136,696$ (1,356)$ 378,281$ 119,347$ 9,655$ (3,589)$ (17,594)$ 127,303$ 748,743$

1. Reserved shares are held in relation to employee share trusts.

2. The Trustee sold all of the shares in the Austal Group Management Share Plan (AGMSP) during FY2019.

3. Transfer of reserved shares relating to vested AGMSP.

4. Transfer of lapsed LTI balance.

5. Transfer of retirement reserve opening balance.

6. Reclassification of FY2019 Indeterminate Rights to equity from provisions

64 Austal Limited | Consolidated statement of cash flows for the year ended 30 June 2020

Consolidated statement of cash flows for the year

ended 30 June 2020

2020 2019

Notes 000 000

Cash flows from operating activities

Receipts from customers (exclusive of GST) 2,165,269$ 1,865,442$

Payments to suppliers and employees (exclusive of GST) (1,982,563) (1,688,944)

Income tax refunded / (paid) (13,584) (7,261)

Interest paid (6,034) (5,773)

Interest received 5 1,384 1,053

Net cash from / (used in) operating activities 7 164,472$ 164,517$

Cash flows from investing activities

Purchase of property, plant and equipment 19 (16,700)$ (41,542)$

Payment for intangible assets 20 (1,661) (1,556)

Proceeds from sale of property, plant and equipment 186 3,867

Receipts of government infrastructure grants - 1,482

Net cash from / (used in) investing activities (18,175)$ (37,749)$

Cash flows from financing activities

Dividends paid (net of dividend reinvestment program) (20,586)$ (19,211)$

Principal component of lease payments (6,010) -

Repayment of borrowings 12 - (10,744)

Payment of borrowing costs 12 (642) -

Sale of surplus AGMSP Shares 1 - 7,674

Exercise of rights - 968

Net cash from / (used in) financing activities (27,238)$ (21,313)$

Net increase / (decrease) in cash and cash equivalents 119,059$ 105,455$

Cash and cash equivalents

Cash and cash equivalents at beginning of year 275,665$ 162,024$

Net increase / (decrease) in cash and cash equivalents 119,059 105,455

Net foreign exchange differences 1,943 8,186

Cash and cash equivalents at end of year 10 396,667$ 275,665$

1. The Trustee sold all of the shares in the Austal Group Management Share Plan (AGMSP) during FY2019.


Austal Limited | Notes to the consolidated financial statements 65

Notes to the consolidated financial statements

Basis of preparation

Corporate information

The financial report of the Austal Limited Group of Companies (the Group or the Company) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the Directors on 21 August 2020.

Austal Limited is a limited liability company incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX) under the code ASB.

The principal activities of the Group during the year were the design, manufacture and sustainment of high performance vessels. These activities were unchanged from the previous year.

Basis of preparation

I Introduction

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and the Australian Accounting Standards Board (AASB).

The financial report also complies with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board.

The financial report has been prepared on a historical cost basis, except for derivative financial instruments and land and buildings that have been measured at fair value.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand (unless otherwise stated) under the option available to the Group under ASIC Corporations

/ 191. The Company is an entity to which the Instrument applies.

The financial report presents the figures of the consolidated entity, unless otherwise stated.

Austal Limited is a for profit entity.

66 Austal Limited | Notes to the consolidated financial statements

II Reporting structure

The notes to the consolidated financial statements have been divided into 8 main sections which are summarised as follows:

1. Current year performance

This section focuses on the results and performance of the Group, including profitability, earnings per share, cash generation, and the return of cash to shareholders via dividends.

2. Capital structure

This section focuses on the long term funding of the Group including cash, interest bearing loans and borrowings, contributed equity and Government grants.

3. Working capital

This section focuses on shorter term working capital concepts such as trade receivables, trade payables, work in progress and inventories.

4. Infrastructure & other assets

This section focuses on property, plant and equipment, intangible assets of the Group, impairment and other assets.

5. Other l iabil ities

This section focuses on provisions such as employee benefits, workers compensation and warranty.

6. Financial risk management

This section focuses on the Group s approach to financial risk management, fair value measurements, foreign exchange hedging and the associated derivative financial instruments.

7. Unrecognised items

This section focuses on commitments and contingencies that are not recognised in the financial statements and events occurring after the balance date.

8. The Group, management and related parties

This section focuses on the corporate structure of the Group, parent entity data, key management personnel compensation and related party transactions.

III Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group for the year ended 30 June 2020.

Subsidiaries are all of those entities over which the Group has power over the entity, exposure or rights to variable returns from its involvement with the entity and the ability to use its power over the entity to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Financial statements of foreign controlled entities presented in accordance with overseas accounting principles are adjusted to comply with Group policy and generally accepted accounting principles in Australia for consolidation purposes. All intercompany balances, transactions, unrealised gains and losses resulting from intra-Group transactions and dividends have been eliminated in preparing the consolidated financial statements.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.

Investments in subsidiaries held by Austal Limited are accounted for at cost in the separate financial statements of the parent entity less any impairment charges.



IV Foreign currency transactions and translation

Both the functional and presentation currency of Austal Limited and its Australian subsidiaries are Australian dollars (AUD). The Company determines the most appropriate functional currency for each entity within the Group and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling applicable at the balance date. All exchange differences arising from the above procedures are taken to the Other Comprehensive Income.

The functional currency of the subsidiaries undert USA, Vietnam and the Philippines is United States Dollars (USD).

The assets and liabilities of the overseas subsidiaries are translated into the presentation currency of Austal Limited at the closing foreign exchange rate for the reporting date. The Profit and Loss is translated at the average exchange rates for the period. The exchange differences arising on translation are taken directly to a separate reserve in equity. The deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Profit and Loss on disposal of a foreign entity.

V Accounting judgements and estimates

The Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities in the application of the G . The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Information on material estimates and judgements considered when applying the accounting policies can be found in the following notes:

Key accounting judgements and estimates Note

Leases 2

Contract revenue and expected construction profits at completion 4

Research and development tax credits 5

Deferred tax assets 9

Impairment of non-financial assets 19, 21

Estimation of useful lives of assets 19

Provisions 24

Share based payments 34


VI New and amended standards adopted by the Group

The nature and effect of changes as a result of the adoption of new accounting standards are described below. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

1. AASB 16 Leases

AASB 16 Leases is applicable for financial years commencing from 1 January 2019. This note explains the impact of the adoption of AASB 16 on the Gnew accounting policies.

The Group has adopted AASB 16 retrospectively with a cumulative effect applied from 1 July 2019, but has not restated the prior corresponding period, as is permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.

Adjustments recognised on adoption of AASB 16

The Group recognised lease liabilities in relation to the adoption of AASB 16 which had been der the principles of AASB 117 Leases. These lease

liabilities were measured at the present value of the remaining lease payments, discounted using the (IBR) as of 1 July 2019. The weighted average IBR applied to

the lease liabilities on 1 July 2019 was 3.31%.

For leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the Right-of-Use Asset and the Lease Liability at the date of initial application, 1 July 2019. The measurement principles of AASB 16 are only applied after that date. The re-measurements to the lease liabilities were recognised as adjustments to the related right-of-use assets immediately after the date of initial application.

The table below reconciles the operating lease commitments disclosed at 30 June 2019 and the opening lease liability position under AASB 16:

1 July 2019

Operating lease commitments disclosed at 30 June 2019 (11,661)$

Less: short-term leases recognised on a straight-line basis as expense 1,059$

Less: discount using IBR at the date of initial application 1,591

Add: finance lease liabilities recognised as at 30 June 2019 (2,670)

Lease liability recognised as at 1 July 2019 (11,681)$



Accounting treatment of the G

In applying AASB 16, for all leases (except as noted below), the Group:

Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position;

o Lease liabilities are initially measured at the present value of the future lease payments.

o Right-of-use assets are initially measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 30 June 2019.

Recognises depreciation of right-of-use assets and interest on lease liabilities in profit or loss;

Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows.

There were no onerous lease contracts.

The table below shows the split of the lease liability between current and non-current:

The table below shows the right-of-use asset composition:

30 June 2020 1 July 2019

000 000

Lease liability

Current lease liability (2,627)$ (4,852)$

Non-current lease liability (7,449) (6,829)

Total (10,076)$ (11,681)$

30 June 2020 1 July 2019

000 000

Right-of-use assets

Properties 9,346$ 9,011$

Equipment 262 2,670

Motor vehicles 128 -

Total 9,736$ 11,681$


The tables below show the impact to the Profit and Loss:

Practical expedients applied

The Group has used the following practical expedients permitted by the standard in applying AASB 16 Leases for the first time:

The accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 are classified as short-term leases and excluded.

The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and

The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

Payments associated with leases with a lease term of 12 months and leases of low-value assets are recognised on a straight-line basis as an expense in the Profit and Loss.

Significant accounting judgements and estimates

The Group determines the lease term as the non-cancellable term of the lease. The non-cancellable term is adjusted for periods covered by an option to extend the lease if it is reasonably certain the option will be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group applies judgement in evaluating whether it is reasonably certain that it will exercise the option to renew or terminate the lease. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate.

2020

000

Amounts recognised in the Profit and Loss

Depreciation for right-of-use assets

Properties (3,112)$

Equipment (2,524)

Motor vehicles (87)

Total (5,723)$

Interest expense (included in finance cost) (436)$

2020

000

Profit and Loss impact assessment

Rental expense decreased 6,010$

EBITDA 6,010$

Depreciation increased (5,723)

EBIT 287$

Interest expense increased (436)

PBT (149)$



The interest rate implicit in the lease cannot readily be determined. The Group therefore uses an IBR to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, in a similar economic environment, over a similar term and with a similar security. The use of an IBR therefore requires estimation when no observable rates are available.

2. IFRIC Interpretation 23 Uncertainty over Inco me Tax Treatment

International Financial Reporting Interpretations Committee (IFRIC) 23 became applicable from 1 July 2019 and addresses the accounting for income taxes under AASB 12 Income Taxes when tax treatments involve uncertainty. IFRIC 23 does not apply to taxes outside the scope of AASB 12 nor does it specifically include the treatment of interest and penalties associated with uncertain tax treatments.

IFRIC 23 specifically addresses the following:

Whether an entity considers uncertain tax treatments separately.

The assumptions an entity makes about the examination of tax treatments by taxation authorities.

How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.

How an entity considers changes in facts and circumstances.

Since the Group operates in a multinational environment, it has assessed whether IFRIC 23 had an impact on the consolidated financial statements. The Group considers that it is probable that the tax treatments applied by the Group will be accepted by the respective tax authorities of the Group entities. IFRIC 23 did not have an impact on the consolidated financial statements.

VII Other new accounting standards in issue but not yet effective:

The following new or amended standards in issue but not yet effective are not expected to have a

Definition of a Business AASB 2018-6 Amendments to AASB 3

Definition of Material AASB 2018-7 Amendments to AASB 1 and AASB 8

Interest Rate Benchmark Reform AASB 2019-3 Amendments to AASB 7 and AASB 9

Conceptual Framework for Financial Reporting AASB 2019-1 Amendments to References

Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia AASB 2019-5 Amendments to the Australian Accounting Standards


Current year performance

Operating segments

I Disclosures

Elimination /

USA Australasia Unallocated Adjustments Total

000 000 000 000 000

Year ended 30 June 2020

Revenue

External customers 1,603,764$ 482,216$ - $ 21$ 2,086,001$

Inter-segment 1 - 14,558 - (14,558) -

Total 1,603,764$ 496,774$ - $ (14,537)$ 2,086,001$

Profit / (loss) before tax

Earnings before interest and tax 123,017$ 30,886$ (23,074)$ (433)$ 130,396$

Finance income - - 1,384 - 1,384

Finance expenses - - (8,267) - (8,267)

Profit / (loss) before income tax 123,017$ 30,886$ (29,957)$ (433)$ 123,513$

Depreciation and amortisation (27,230)$ (17,015)$ (1,498)$ - $ (45,743)$

Balance sheet

Segment assets 977,872$ 321,851$ 77,890$ (9,505)$ 1,368,108$

Segment liabilities (355,020) (207,093) (57,252) - (619,365)

Elimination /

USA Australasia Unallocated Adjustments Total

000 000 000 000 000

Year ended 30 June 2019

Revenue

External customers 1,472,679$ 378,076$ 108$ 158$ 1,851,021$

Inter-segment 1 - 15,079 - (15,079) -

Total 1,472,679$ 393,155$ 108$ (14,921)$ 1,851,021$


Earnings before interest and tax 106,422$ 11,673$ (25,267)$ (33)$ 92,795$

Finance income - - 1,053 - 1,053

Finance expenses - - (8,284) - (8,284)

Profit / (loss) before income tax 106,422$ 11,673$ (32,498)$ (33)$ 85,564$

Depreciation and amortisation (29,381)$ (10,003)$ (2,822)$ - $ (42,206)$

Balance sheet

Segment assets 913,301$ 320,408$ 103,200$ (9,608)$ 1,327,301$

Segment liabilities (411,658) (242,372) (42,488) - (696,518)

1. Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.



2020 2019

000 000

Analysis of unallocated

Revenue

Charter vessel revenue - $ 108$

Total - $ 108$


Administration expenses (19,618)$ (19,415)$

Marketing expenses (12,746) (9,758)

Research and development credits 9,314 6,037

Foreign exchange gains / (losses) (24) (776)

Write down of charter vessels - (1,157)

Charter vessel profit / (loss) - (198)

Finance expenses (8,267) (8,284)

Finance income 1,384 1,053

Total (29,957)$ (32,498)$

Segment assets

Cash 63,690$ 77,202$

Other non-current assets 1 7,767 14,838

Deferred tax assets 4,757 8,402

Other receivables 172 33

Income tax receivable 1 2,324

Other 1,503 401

Total 77,890$ 103,200$

Segment liabilities

Deferred tax liabilities (43,129)$ (33,839)$

Creditors and provisions (14,123) (8,649)

Total (57,252)$ (42,488)$

1. Balance relates to research and development (R&D) credits. Further information is provided in Note 23.

2020 2019

000 000

Revenue from external customers

By geographical location of customers

North America 1,603,764$ 1,472,679$

Europe 131,240 150,922

Australia 158,085 108,647

Asia 55,013 81,059

South and Central America 132,346 36,050

Middle East 2,981 1,664

Africa 2,572 -

Total 2,086,001$ 1,851,021$


II Identification of reportable segments

The Group is organised into two business segments for management purposes based on the location of the production facilities, related sales regions and types of activity.

The Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), monitors the performance of the business segments separately for the purpose of making decisions. Segment performance is evaluated based on operating Profit and Loss. Finance costs, finance income and income tax are managed on a Group basis (i.e. Unallocated).

III Reportable segments

The reportable segments are:

1. USA

The USA manufactures high performance aluminium defence vessels for the US Navy and provides training and on-going support and maintenance of these high performance vessels to the US Navy.

2. Australasia

lia, Philippines, Vietnam, Aulong Joint Venture and Muscat operations is combined into a single Australasia reporting segment. These locations act as a single business unit for tendering, scheduling, resource planning and management accountability.

The Australasia business manufactures high performance vessels for markets worldwide, excluding the USA, and provides training, on-going support and maintenance for high performance vessels.

IV Accounting policies, inter-segment transactions and unallocated items

The accounting policies used for reporting segments internally are the same as those utilised for reporting the accounts of the Group. Inter- in

ng policy.

Certain unallocated items are not considered to be part of the core operations of any segment.

2020 2019

000 000

Non-current assets 1

Geographical location

North America 478,775$ 451,188$

Australia 97,054 106,635

Asia 56,562 51,304

Total 632,391$ 609,127$

Composition

Property, plant and equipment 610,199$ 588,384$

Intangible assets 22,192 20,743

Total 632,391$ 609,127$

1. Excludes financial instruments, prepayments and deferred tax assets.



Revenue

I Disclosure

II Recognition and measurement

1. Vessel construction revenue

with AASB 15 is as follows:

Revenue represents income derived from contracts for the provision of goods and services by the Company and its subsidiary undertakings to customers in exchange for consideration in the ordinary

Performance obligations

Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract. Contracts are combined into one performance obligation for the purposes of revenue and profit recognition where individual contracts do not result in a performance obligation on the basis that it is not distinct and do not have independent utility to the customer.

Transaction price

The total transaction price at the start of the contract is estimated as the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration, such as price escalation, is included based on the expected value or most likely amount only to the extent that it is highly probable that there will not be a reversal in the amount of cumulative revenue recognised. The transaction price does not include estimates of consideration resulting from contract modifications, such as change orders, until they have been approved by the parties to the contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices. There are typically no observable stand-alone selling prices given the bespoke nature of man / or manufactured under

-alone selling prices are typically estimated based on expected costs plus contract margin consistent principles.

2020 2019

000 000

Revenue

Vessel construction 1,716,462$ 1,560,219$

Vessel support 360,158 280,574

Charter vessels CCPB 9 & 10 9,381 10,120

Other charter vessels - 108

Total Revenue from customers 2,086,001$ 1,851,021$


Revenue and profit recognition

Revenue is recognised as performance obligations are satisfied as control of the goods and services is transferred to the customer.

The Group determines whether each performance obligation within a contract is satisfied over time or at a point in time. Performance obligations are satisfied over time if one of the following criteria is satisfied:

The performance as it performs;

created or enhanced; or

an enforceable right to payment for performance completed to date.

The Group has determined that most of its contracts satisfy the over time criteria, either because the customer it peran alternative use to the Group and it has an enforceable right to payment for performance completed to date (typically shipbuilding contracts).

The Group recognises revenue using an input method, based on costs incurred in the period for each performance obligation to be recognised over time. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and total expected costs, after making suitable allowances for technical and other risks. Revenue and associated margin are therefore recognised progressively as costs are incurred, and as risks have been mitigated or retired. The Group does not include long lead time materials where they do not represent progress. The Group has determined that

services to the customer.

Revenue is recognised at the point in time that control is transferred to the customer if the over time criteria for revenue recognition are not met, which is usually when legal title passes to the customer and the business has the right to payment, for example, on delivery.

Expected losses are recognised immediately as an expense when it is probable that total contract costs will exceed total contract revenue.

Contract modifications

A contract modification exists when the parties to the contract approve a modification that either changes existing or creates new enforceable rights and obligations. The effect of a contract

of the performance obligation to which it relates is recognised in one of the following ways:

Prospectively as an additional, separate contract;

Prospectively as a termination of the existing contract and creation of a new contract; or

As part of the original contract using a cumulative catch up.

requirement for additional distinct goods or services) or 3 (for example, a change in the specification of the distinct goods or services for a partially completed contract), although the facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract-by-contract and may result in different accounting outcomes.



Costs to obtain a contract

The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded. The Group does not typically incur costs to obtain contracts that it would not have incurred had the contracts not been awarded.

Costs to fulfil a contract

Contract fulfilment costs in respect of over time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time contracts are accounted for under AASB 2 Inventories.

Inventories

Inventories includes raw materials and work-in-progress recognised in accordance with AASB 2 in respect of contracts with customers which have been determined to fulfil the criteria for point in time revenue recognition under AASB 15. The Group does not typically build inventory to stock. Inventories are stated at the lower of cost and net realisable value.

2. Vessel support revenue

Revenue from support contracts is recognised in the Profit and Loss statement when the performance obligations are considered met. Revenue is recognised at an amount that reflects the consideration the Group expects to be entitled to receive, net of goods and services tax or similar tax.

3. Vessel finance for Cape Class Patrol Boats 9 & 10 (CCPB 9 & 10)

Austal entered into a finance arrangement with National Australia Bank (NAB) and the Royal Australian Navy (RAN) for the construction of CCPB 9 & 10 in December 2015.

NAB financed the purchase of the vessels and was leasing them to the RAN for an initial 3 year term which was subsequently extended in August 2020 to April 2023 and May 2023. The contract extension reduces the total residual value to $24.335 million.

This arrangement results in non-charter period for notional revenue, notional depreciation and notional interest. Notional revenue of $9.381 million was reported in FY2020 (FY2019: $10.120 million).

Further information is provided in Note 11 and Note 30.

III Remaining performance obligations (w ork in hand)

The transaction price allocated to remaining performance obligations (unsatisfied or partially satisfied) at 30 June 2020 is set out below:

Transaction price allocated to remaining performance obligations pursuant to customer contracts

2020 2019

000 000

Committed but not recognised as liabilities payable:

- Within one year 1,657,917$ 1,795,768$

- One to five years 2,593,180 3,089,116

Total 4,251,097$ 4,884,884$

The transaction price associated with unsatisfied or partially satisfied performance obligations does not include variable

consideration that is constrained.


IV Significant accounting judgements and estimates

1. Contract revenue and expected construction profits at completion

significant estimates to be made for total contract revenues, total contract costs and the current percentage of completion, Estimates were made by management with respect to total contract revenues, and total contract costs, which had a resulting impact on the percentage of completion, in e.

2. Contingencies

Significant judgement is required in relation to the determination of cost contingencies that are included within the estimated total contract costs for each vessel project at balance date.

The Group includes contingencies in individual vessel projects to allow for risks associated with estimates of material volumes and costs, labour hours including productivity improvements from ship to ship in multi-vessel programs, labour rates, liquidated damages for contractual commitments and other risks that may be identified for each individual project on a case by case basis such as the incorporation and development of novel technologies and production methods and achievement of key milestones.

Contingencies held for undelivered LCS and EPF at 30 June 2020 equated to a maximum potential future EBIT of $209 million. This was equivalent to 7.4% of the Total Cost Estimate to Completion (ETC). This takes into account the potential for reductions in vessel prices that may arise through the risk sharing mechanism embedded in those US Navy shipbuilding programs if the cost contingencies are ultimately not required. An average contingency of approximately $1 million was held for each LCS and EPF that had already been delivered but were not contractually closed at balance date. The maximum potential future EBIT from those contingencies was $20 million.

Contingencies held at 30 June 2020 for undelivered vessels from the Australasia business unit equated to a maximum potential future EBIT of $26 million. This was equivalent to 4.9% of ETC.

Contingencies will either be consumed or released as progress is made on each vessel, and the risks are either realised or retired and / or certain milestones are achieved. Successful mitigation of the risks and / or successful achievement of the milestones can be estimated with greater certainty in the latter stages of the completion of each particular vessel. The profit recognised on relevant vessels will decrease in future reporting periods in the event that initial contingency estimates do not adequately cover cost increases. The profit recognised on relevant vessels will increase in future reporting periods in the event that initial contingency estimates exceed any cost increases that may eventuate.



Other profit and loss

I Disclosure

2020 2019

000 000

Other income and expenses

Government infrastructure grants amortised 6,587$ 9,270$

Training reimbursement grants 3,047 2,631

Sale of scrap materials 3,023 3,008

Sundry income 2,512 2,296

Vessel warranties (5,107) (2,569)

Write down of assets - (1,200)

Gain / (loss) on disposal of property, plant and equipment (147) 439

Net foreign exchange gain / (loss) (144) (574)

Total 9,771$ 13,301$

Finance income

Finance income 1,384$ 1,053$

Finance costs

Interest to unrelated parties (7,543)$ (7,557)$

Amortisation of capitalised loan origination costs (724) (727)

Total (8,267)$ (8,284)$

Net finance costs (6,883)$ (7,231)$

Depreciation and amortisation

Depreciation (37,188)$ (39,905)$

Depreciation of right-of-use assets (5,723) -

Amortisation of intangible assets (2,832) (2,301)

Total (45,743)$ (42,206)$

Employee benefits 1

Wages and salaries (449,966)$ (428,212)$

Annual leave expense (27,308) (23,612)

Post-retirement benefits (10,434) (8,459)

Workers' compensation costs (4,561) (6,566)

Share based payments expense (4,599) (5,975)

Long service leave expense (1,771) (2,249)

Total (498,639)$ (475,073)$

Research and development credits 2

Research and development credits 11,103$ 6,037$

1. Disclosed within cost of sales and administrative expenses

2. Disclosed within cost of sales


II Recognition & measurement

The following recognition and measurement criteria must be met before the following specific items are recognised in the Profit and Loss:

1. Grants relating to expense items

Grants include US Government infrastructure grants and training reimbursement grants. Grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

All grants are recognised as income when they relate to an expense item. The grants are recognised over the periods necessary to match the grant to the costs that they are intended to compensate.

2. Research and Development (R&D) credits

R&D tax credit incentives are accounted for as a Government grant under AASB 120 rather than as an income tax benefit under AASB 112.

The excess R&D credits are recognised as a reduction to each vessel s cost estimate at completion when there is reasonable assurance that the credits will be received and utilised. The entire credit is recognised in cost of sales and changes the calculation of percent complete which impacts the timing of revenue recognition for the projects.

The net impact to profit before tax in FY2020 was $11.103 million (FY2019: $6.037 million).

The future tax benefit of carry forward R&D credits are recognised in Other Non Current Assets. Further information relating to the R&D credits is provided in Note 23.

2020 2019

Auditor's remuneration1

Amounts received or due and receivable by Deloitte Touche Tohmatsu Australia and related

network firms for:

Audit or review of the financial statements

- Group (255,136)$ (192,200)$

- Controlled entities (976,196) (916,845)

Total audit and review of financial statements (1,231,332)$ (1,109,045)$

Other assurance services (7,500)$ -

Non-audit services

- Taxation advice and compliance services (258,199)$ (425,904)$

- Consulting services (32,491) (133,653)

Total non-audit services (290,690)$ (559,557)$

Total (1,529,522)$ (1,668,602)$

1. Auditor's remuneration payable in USD was converted at USD / AUD exchange rate of 0.6710 in FY2020 (FY2019: 0.7150).



3. Finance costs

Finance costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. All other finance costs are expensed in the period that they occur. There were no qualifying assets in FY2020.

Finance costs include interest payments, amortisation of capitalised loan origination costs and other costs that an entity incurs in connection with the borrowing of funds.

4. Sale of scrap materials

Revenue for the sale of scrap is recognised when the significant risks and rewards of ownership of the materials have passed to the buyer. Risk and rewards of ownership are considered to have passed to the buyer at the time of delivery of the goods to the customer.

5. Foreign exchange gains and losses

Foreign exchange gains and losses included in the Profit and Loss comprise fair value adjustments on non-derivative financial assets (such as foreign currency denominated loans) and gains and losses on cash flow hedges that were deemed to be ineffective during the accounting period.

III Significant accounting judgements and estimates

1. R&D credits

Management has made judgements regarding which expenditure is classified as eligible for the credit, including assessing activities to determine whether they are conducted for the purposes of generating new knowledge, and whose outcome cannot be known or determined in advance.


Earnings per share

I Calculation

II Measurement

Basic earnings per share is calculated by dividing Net profit / (loss) after tax for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the Net profit / (loss) after tax for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary shares into ordinary shares.

III Information concerning the classification of securities

1. Performance rights

the calculation of diluted earnings per share where the conditions would have been met at the reporting date. There were 4,373,764 performance rights that were potentially dilutive at 30 June 2020. These rights are included in the determination of diluted earnings per share.

Further information relating to the performance rights is provided in Note 34.

2. Share rights

Share rights may be provided to KMP as part of total fixed remuneration. The share rights are treated as effective shares and therefore included in the calculation of basic earnings per share.

Further information relating to the share rights is provided in Note 34.

3. Service Rights

Further information relating to the share rights is provided in Note 34.

4. Other equity transactions

Austal issued 2,370,494 shares to the trust during August 2020 in relation to the vesting of the FY2018 LTI plan and share rights issued to Non-Executive Directors.

There have been no additional transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

2020 2019

Net profit / (loss) after tax

Net profit attributable to ordinary equity holders of the parent $ 000 88,978$ 61,384$

Weighted average number of ordinary shares

Basic Number 356,243,475 349,598,590

Effect of dilution Number 4,568,163 4,476,326

Diluted Number 360,811,638 354,074,916

Earnings per share

Basic earnings per share $ / share 0.250$ 0.176$

Diluted earnings per share $ / share 0.247$ 0.173$



Reconciliation of net profit after tax to net cash flows from operations

2020 2019

000 000

Net profit / (loss) after tax 88,978$ 61,384$

Adjustments for non cash profit and loss items:

Depreciation and amortisation 45,743$ 42,206$

Write down of charter vessels - 1,200

Net (gain) / loss on disposal of property, plant and equipment 147 (439)

Share based payments expense 4,599 5,975

Net foreign exchange differences 140 574

CCPB 9 & 10 notional charter income (9,381) (10,120)

CCPB 9 & 10 notional interest expense 1,509 1,785

Amortisation of borrowing costs 724 727

Research and development tax credits recognised (11,103) (6,037)

Non-cash mark to market revaluations (2,333) 3,903

Total 30,045$ 39,774$

Changes in assets and liabilities:

Increase / (decrease) in income tax (current and deferred) 20,951$ 12,073$

(Increase) / decrease in provisions (5,103) 15,708

(Increase) / decrease in trade and other receivables 86,012 (115,180)

(Increase) / decrease in inventories and work in progress 28,698 75,604

(Increase) / decrease in prepayments (2,074) (1,923)

(Increase) / decrease in other financial assets (1,098) (1,699)

Increase / (decrease) in trade and other payables (49,271) 16,427

Increase / (decrease) in progress payments in advance (26,078) 66,643

Increase / (decrease) in government grants (6,588) (4,294)

Total 45,449$ 63,359$

Net cash inflow / (outflow) from operating activities 164,472$ 164,517$


Dividends paid and proposed

I Dividends on ordinary shares

II Franking credit balance

2020 2019

Dividends paid on ordinary shares 000 000

Unfranked final dividend for the prior year, 3 cps (2019: unfranked, 3 cps) (10,693)$ (10,549)$

Unfranked interim dividend for the current year, 3 cps (2019: unfranked, 3 cps) (10,697) (10,584)

Total (21,390)$ (21,133)$

Dividend declared subsequent to the reporting period end (not recorded as liability)

Unfranked final dividend for the current year 5 cps (2019: unfranked, 3 cps) (17,835)$ (10,601)$

2020 2019

000 000

Opening balance 1,170$ 1,170$

Franking credits distributed - $ - $

Franking credits movement from the payment / (refund) of income tax - -

Movement - $ - $

Closing balance 1,170$ 1,170$



Income and other taxes

I Income tax expense

2020 2019

000 000

Major components of tax (expense) / benefit are:

Consolidated profit and loss

Current income tax

Current income tax charge (14,052)$ (10,851)$

Adjustments in respect of current income tax of the previous year (1,765) 745

Total (15,817)$ (10,106)$

Deferred income tax

Relating to origination and reversal of temporary differences (19,302)$ (13,737)$

Adjustments in respect of deferred income tax of the previous year 584 (337)

Total (18,718)$ (14,074)$

Total income tax (expense) / benefit (34,535)$ (24,180)$

Other comprehensive income (OCI)

Current and deferred income tax related items charged or credited directly to OCI

Current and deferred gains and losses on foreign currency contracts and consolidation adjustments (1,474)$ 460$

Deferred gains on revaluation of property, plant and equipment (10,713) (578)

Total income tax (expense) / benefit charged to OCI (12,187)$ (118)$

A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group s applicable

income tax rate is as follows:

Accounting profit / (loss) before income tax from continuing operations 123,513$ 85,564$

Income tax at the Group s statutory income tax rate of 30% (2019: 30%) (37,054)$ (25,669)$

Adjustment for USA statutory income tax rate of 25.4% (2019: 25.3%) 3,702$ 3,456$

Adjustment for Philippines income tax rate of 5% 1,218 4,507

Other foreign tax rate differences 191 48

Non-assessable R&D credits in cost of sales 3,328 1,652

USA revalue deferred balances for change in weighted average state tax rates 434 (367)

USA withholding tax leakage due to losses in Australia - (787)

Carry forward tax losses not recognised (39) (1,776)

Transfer pricing adjustments in respect of intercompany royalties (2,907) (2,727)

Non-deductible share based payment expense (1,134) (1,712)

Non-deductible capital expenses (459) -

Other non-assessable or non-deductible items (634) (1,213)

Adjustments in respect of current and deferred income tax of the previous year (1,181) 408

Total Adjustments 2,519$ 1,489$

Income tax (expense) / benefit reported in the profit and loss (34,535)$ (24,180)$

Income tax receivable / (payable)

Income tax receivable / (payable) (259)$ 1,701$


II Analysis of temporary differences

Movement in

Statement of Financial Position Profit and Loss

2020 2019 2020 2019

000 000 000 000

Deferred income tax - USA

Deferred tax assets

Deferred grant income 14,520$ 15,924$ (1,725)$ (1,899)$

Payables 5,845 5,782 (37) 155

Provisions 4,606 3,337 1,247 2,713

Deferred gains and losses on foreign currency contracts 2,202 2,158 (7) (41)

Facility lease 45 - 46 -

Losses available for offset against future taxable income 34 33 - (573)

R&D - - (16,852) (14,004)

Alternative minimum tax credits - - - (1,420)

Work in progress - - - (1,214)

Other 56 - 58 -

Total 27,308$ 27,234$ (17,270)$ (16,283)$

Deferred tax liabilities

Property, plant and equipment (65,550)$ (56,845)$ 3,070$ 2,473$

Work in progress (3,706) (3,012) (661) (2,964)

Intangibles (876) (938) 80 75

Payables (305) (273) - -

Deferred gains and losses on foreign currency contracts - (5) (3) (3)

Total (70,437)$ (61,073)$ 2,486$ (419)$

Net deferred tax asset / (liability) (43,129)$ (33,839)$ (14,784)$ (16,702)$

Deferred income tax - Australia

Deferred tax assets

Provisions 8,587$ 8,013$ 573$ 380$

Payables 512 289 177 (400)

Cash 394 511 (117) 597

Deferred gains and losses on foreign currency contracts 207 2,368 - -

Facility lease 8 - 8 -

CCPB 9 & 10 (27) 407 (433) (327)

Work in progress - 2,820 (2,820) 2,820

R&D - - (1,789) -

Other 258 219 38 109

Total 9,939$ 14,627$ (4,363)$ 3,179$

Deferred tax liabilities

Property, plant and equipment (4,518)$ (4,771)$ 253$ (849)$

Deferred gains and losses on foreign currency contracts (721) (554) - -

Other (389) (1,196) - -

Total (5,628)$ (6,521)$ 253$ (849)$

Net deferred tax asset / (liability) 4,311$ 8,106$ (4,110)$ 2,330$

Deferred income tax - Other

Deferred tax assets 477$ 328$ 166$ 308$

Deferred tax liabilities (31) (32) 10 (10)

Net deferred tax asset / (liability) 446$ 296$ 176$ 298$

Net deferred tax asset / (liability) (38,372)$ (25,437)$ (18,718)$ (14,074)$



III Austal Group Tax Strategy

(ARC). This strategy applies to Austal Limited and its worldwide subsidiary companies.

1. Tax risk management and governance

processes are supported through its Tax Risk ARC. The ARC assists the Board in fulfilling its

oversight responsibilities by reviewing, monitoring and making recommendations in relation to tax risk management and governance practices.

The standard includes:

ensuring the roles and responsibilities for the management of tax risks are documented and understood;

maintaining a qualified and adequately resourced tax team to manage the tax control framework and day to day tax affairs;

requiring tax review of specified transactions and events and obtaining external advice where appropriate; and

regular reporting of key tax issues to the Chief Financial Officer and to the Board of Directors and Audit and Risk Committee.

2. Tax principles

fulfil its tax obligations in accordance with tax laws and practice of the tax jurisdictions in which it operates.

pay the amount of tax which is legally due at the correct time.

maintain an open, transparent and collaborative relationship with tax authorities.

act with integrity and protect the reputation of Austal.

3. Tax planning

Austal seeks to manage its business in a tax-efficient manner, compliant with the tax laws, rules and regulations of the jurisdiction it operates in. Transactions are undertaken for commercial and economic business reasons; Austal will not knowingly participate in, facilitate nor promote artificial or contrived tax planning arrangements for the purposes of tax avoidance.

4. Tax risk appetite

Tax risk will inevitably arise given the scale of the business and the number of tax jurisdictions in which Austal operates, the judgments that are required to interpret complex tax regulations and the continually changing nature of tax laws.

Austal practices prudent management of its tax affairs through the application of its Tax Risk Management Standard. Austal proactively seeks to identify, evaluate, manage and monitor tax uncertainties and risks to ensure that they are appropriately addressed. Transfer pricing is calculated

underlying economic consequences.


5. Relationship with tax authorities

Austal is committed to engaging with the regulatory authorities with integrity, honesty, respect, fairness, transparency and a spirit of co-operation.

6. UK specific comments

Schedule 19 Finance Act Qualif ) for Austal UK Limited.

IV Recognition and measurement

1. Current tax assets and liabilities

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance date.

2. Deferred income tax

Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when:

the deferred income tax liability arises from the initial recognition of goodwill, or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable Profit and Loss; or

the taxable temporary differences associated with investments in subsidiaries, associates or joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

3. Deferred income tax asset recognition

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward tax assets and losses to the extent that the availability of taxable profit against which the deductible temporary differences is probable; and the deferred tax assets can be utilised, except when:

the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable Profit and Loss;

the deductible temporary differences are associated with investments in subsidiaries, associates and interests in joint ventures in which case a deferred tax asset is only recognised to the extent that taxable profits will be available in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.



4. Deferred income tax asset and liability measurement

The US federal rate of income tax is 21.0% and the weighted average of individual US states in which Austal operates was 25.4% for FY2020. The weighted average tax rate changes year on year based on the apportionment of activity between the states.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance date.

Amounts arising from the re-measurement of deferred balances is disclosed separately in the tax expense reconciliation.

5. Income taxes relating to equity items

Income taxes relating to items recognised directly in equity are only recognised in equity and not in the Profit and Loss.

V Tax consolidation

Austal Limited is the head entity in a Tax Consolidated Group comprising of Austal Limited and its 100% owned Australian resident subsidiaries that was implemented 1 July 2002. Members of the Group entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis.

The agreement provides for the allocation of income tax liabilities between the entities in the event that the head entity defaults on its tax payment obligations. The possibility of default was assessed to be remote at the reporting date.

The current and deferred tax amounts for the Tax Consolidated Group are allocated amongst the entities in the Tax Consolidated Group using a stand-alone taxpayer approach whereby each entity in the Tax Consolidated Group measures its current and deferred taxes as if it had continued to be a separately taxable entity in its own right. Deferred tax assets and deferred tax liabilities are measured by reference to the

values applying under tax consolidation.

Any current or deferred tax assets or liabilities arising from unused tax losses assumed by the head entity from the subsidiaries in the Tax Consolidated Group are recognised in conjunction with any tax funding arrangement amounts. The Tax Consolidated Group recognises deferred tax assets arising from unused tax losses of the Tax Consolidated Group to the extent that it is probable that future taxable profits of the Tax Consolidated Group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the head entity only.

The members of the Tax Consolidated Group have entered into a tax funding arrangement which sets out the funding obligations of members of the Tax Consolidated Group in respect of tax amounts. The tax funding arrangements require payments to or from the head entity to be equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity.

No amounts have been recognised as tax consolidation contribution or distribution adjustments in preparing the accounts for the head entity for the current year.


VI Significant accounting judgements and estimates

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements.

1. Deferred tax assets

Deferred tax assets are recognised for deductible temporary differences because management considers that it is probable that future taxable profits will be available to utilise those temporary differences.

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

The Group has not recognised a deferred tax asset on the carry forward tax losses because there is sufficient uncertainty ability to utilise these in the short term. The Group will continue to assess the recognition criteria against the probability of future taxable profits.

Unrecognised deferred tax assets in respect of the Australian Consolidated Tax Group losses at 30 June 2020 were:

2020 2019

000 000

Unrecognised tax losses (tax effected values)

Opening balance 5,714$ 6,175$

True-up of prior year tax losses (195)$ (2,180)$

Losses incurred / (utilised) in the current year - 1,719

Total (195)$ (461)$

Closing balance 5,519$ 5,714$

The future tax benefit of carried forward research and development credits are recognised in Other Non Current Assets in

accordance with the Group's accounting policy of recognising research and development credits as government grants under

AASB 120 Government Grants.



2. Audits by tax authorities

The Group establishes a provision based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.

Austal has applied for and received approval from the Competent Authorities of Australia (ATO) and the United States of America (Internal Revenue Service) for entry into the Mutual Agreement Procedures (MAP) program in relation to double taxation of intercompany royalties associated with intellectual property deployed from Australia to the USA.

Austal has notified both Competent Authorities of its intention to enter into a Bilateral Advance Pricing Arrangement (BAPA) in respect of future inter-company royalties. Formal BAPA applications will be submitted with the Competent Authorities during FY2021.

Australia or the USA if the outcome of the MAP and BAPA process results in the removal of economic double taxation. Austal is currently unable to determine what the outcome of this process may be and the timeline to resolution.

The total additional tax relating to royalties up to 30 June 2020 was $(18.3) million. $(7.6) million of this has already been paid in cash in periods up to and including FY2020. The remaining $(10.7) million has reduced the available losses that have been carried forward but not recognised at 30 June 2020.

VII Other taxes

Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST) or Value Added Tax (VAT) except when:

the GST or VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST or VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item; and

receivables and payables which are stated with the amount of GST or VAT included.

The net amount of GST or VAT recoverable from, or payable to, the relevant taxation authority is included as part of receivables or payables in the statement of financial position.

Cash flows are included in the statement of cash flows on a gross profit basis and the GST or VAT component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the relevant taxation authority, are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST or VAT recoverable from, or payable to, the relevant taxation authority.


Capital structure

Cash and cash equivalents

I Net carrying amount


Cash and short-term deposits in Balance Sheet comprise cash at bank, cash in hand and short-term deposits with an original maturity of three months or less.

Cash and cash equivalents for the purposes of the Cash Flow Statement consists of cash and cash equivalents (as defined above) net of any cash held as a guarantee.

Interest bearing loans and borrowings


2020 2019

000 000

Cash

Cash at bank and in hand 396,667$ 275,665$

Total 396,667$ 275,665$

2020 2019

000 000

Current

Vessel finance for CCPB 9 & 10 (8,719)$ (48,798)$

Finance leases 1 - (2,413)

Total (8,719)$ (51,211)$

Non - current

Go Zone Bonds (124,255)$ (122,286)$

Vessel finance for CCPB 9 & 10 (32,206) -

Finance leases 1 - (257)

Total (156,461)$ (122,543)$

Total (165,180)$ (173,754)$

1. Finance leases are disclosed under lease liabilities due to the adoption of AASB 16 Leases in FY2020.



II Facilities available

III Recognition and measurement

All loans, borrowings and finance leases are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the Profit and Loss when the liabilities are derecognised.

IV Banking facilities

Austal has a Syndicated Facility Agreement which includes a $128.049 million limit for letters of credit to secure the $124.255 million of Gulf Opportunity Zone Bonds (Go Zone Bonds or GZB), and a $280.000 million revolving credit facility. The entire revolving credit facility can be used for contingent non-financial instruments, up to $50.000 million of any unused part of the facility can be used for cash advances and up to $20.000 million of any unused part of the facility can be used for contingent financial instruments. The Syndicated Facility Agreement matures in November 2022.

Contingent non-financial instruments (excluding the letters of credit supporting the Go Zone Bonds) are issued to support concepts such as refund payment guarantees, performance bonds and warranty bonds.

Further information relating to commitments and contingencies is provided in Note 28.

2020 2019

000 000

Facilities used at reporting date

Revolving credit facility (222,695)$ (58,900)$

Go Zone bonds (124,255) (122,286)

Surety facilities (243,658) (126,263)

Finance leases - (2,670)

Total 1 (590,608)$ (310,119)$

Facilities unused at reporting date


Go Zone bonds - -

Surety facilities (6,342) (23,737)

Finance leases - -

Total (63,647)$ (144,837)$

Total facilities available


Go Zone bonds (124,255) (122,286) Surety facilities 2 (250,000) (150,000)

Finance leases - (2,670)

Total (654,255)$ (454,956)$

1. The balance sheet carrying amount of total facilities used is $(124.255) million at 30 June 2020 being Go Zone Bonds and Finance leases

(30 June 2019: $(124.956) million).

2. The Group had total Surety facilities of $400 million at 30 June 2020. However only $250 million may be utilised in accordance with a

limitation in the Group s Syndicated Facility Agreement.


V Go Zone Bonds (GZB)

The GZB are a form of indebtedness that was authorised by the US Federal Government to incentivise private investment in infrastructure in geographical areas that were affected by Hurricane Katrina in 2005. Austal qualified to borrow US$225 million with a 30 year maturity to invest in the development of shipbuilding infrastructure in Austal USA between FY2008 and FY2013.

GZB are tax-exempt municipal bonds in the United States and attracted an average coupon rate of 1.23% in FY2020maturity date of November 2022. The average cost of the letters of credit in FY2020 was 1.54%.

No GZB amounts were redeemed (repaid) during FY2020. Austal has redeemed a cumulative amount of US$137.5 million and owed US$87.5 million at 30 June 2020. Austal has the option of redeeming the outstanding GZB balance, in whole or in part, at any time during the term of the indebtedness with a 30 day notice to bondholders.

Austal re-financed 50% of the GZB letters of credit during FY2020. 100% of the letters of credit securing GZB now mature in November 2022 and all of the GZB debt is classified as non-current at 30 June 2020.

VI Surety facil ity

Austal had a total of $400.000 million of uncommitted and unsecured Surety facilities at 30 June 2020.

Only $250.000 million of the Surety facilities are available for the issuance of non-financial contingent instruments to support vessel contracts in accordance with the limitation within the Syndicated Facility Agreement.

VII Vessel f inance for Cape Class Patrol Boats 9 & 10 (CCPB 9 & 10)

Austal entered into a finance arrangement with National Australia Bank (NAB) and the Royal Australian Navy (RAN) for the construction of CCPB 9 & 10 in December 2015.

NAB financed the purchase of the vessels and was leasing them to the RAN for an initial 3 year term which was subsequently extended in August 2020 to April 2023 and May 2023. The contract extension reduces the total residual value to $24.335 million.

The notional effective interest rate incurred in FY2020 was 3.19%.

VIII Fair value of borrowings

The fair values of all classes of borrowings are not materially different to their carrying amounts since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. The interest rates on Go Zone Bonds are reset on a weekly basis.



Reconciliation of financing cash flow to interest bearing debt

I Reconciliation

Cash charges Non-cash changes

FY2020

Debt Payment Reclassification CCPB 9 & 10 Foreign Amortisation

Repay / of borrowing of Debt exchange of borrowing

30 June 2019 (Draw) costs finance leases Reduction1 movement costs Reclassification 30 June 2020

000 000 000 000 000 000 000 000 000

Current borrowings (51,211)$ - $ - $ 2,793$ 7,873$ (123)$ - $ 31,949$ (8,719)$

Non-current borrowings (122,543) - 642 - - (1,887) (724) (31,949) (156,461)

Total financing liabilities (173,754)$ - $ 642$ 2,793$ 7,873$ (2,010)$ (724)$ - $ (165,180)$

Cash charges Non-cash changes

FY2019

Debt Payment Reclassification CCPB 9 & 10 Foreign Amortisation

Repay / of borrowing of Debt exchange of borrowing

30 June 2018 (Draw) costs finance leases Reduction1 movement costs Reclassification 30 June 2019

000 000 000 000 000 000 000 000 000

Current borrowings (72,758)$ 426$ - $ - $ 8,335$ (139)$ - $ 12,925$ (51,211)$

Non-current borrowings (112,520) 10,318 - - - (6,689) (727) (12,925) (122,543)

Total financing liabilities (185,278)$ 10,744$ - $ - $ 8,335$ (6,828)$ (727)$ - $ (173,754)$

1. CCPB 9 & 10 debt reduction is equal to the difference between the notional charter income and the notional interest expense.


Contributed equity and reserves

I Contributed equity

1. Net carrying amount

2. Recognition and measurement

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds of the new shares or options. Ordinary shares have no par value and the company does not have a limited amount of authorised capital.

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Reserved shares

Austal Limited equity instruments which are issued and held by a trustee under the Employee Share Trust (EST) are classified as Reserved shares and are deducted from Equity. No gain or loss is recognised in the Statement of Comprehensive Income on the purchase, sale, issue or cancellation of

Shares 000

2020 2019 2020 2019

Ordinary shares on issue

1 July 353,357,283 350,857,529 131,836$ 130,165$

Shares issued for dividend reinvestment plan 254,485 912,560 804$ 1,922$

Shares issued to Employee Share Trust 479,686 212,998 1,861 454

Shares or proceeds transferred for beneficiaries - - (1,096) -

Shares issued for vested performance rights 2,617,035 1,374,196 3,291 2,110

AGMSP shares sold1 - - - (2,763)

Tax expense on AGMSP1 - - - (65)

Dividend retained in relation to AGMSP1 - - - 13

30 June 356,708,489 353,357,283 136,696$ 131,836$

Reserved shares

1 July (676,695) (4,165,697) (1,266)$ (11,836)$

Shares issued to Employee Share Trust or sold (479,686) (212,998) (1,861)$ (454)$

Shares or proceeds transferred for beneficiaries 494,774 - 1,771 -

AGMSP shares sold1 - 3,702,000 - 10,929

Dividend retained in relation to AGMSP1 - - - 95

30 June (661,607) (676,695) (1,356)$ (1,266)$

Net 356,046,882 352,680,588 135,340$ 130,570$

1. The Trustee sold all of the shares in the Austal Group Management Share Plan during FY2019.



3. Movements in ordinary share capital

The movement in ordinary shares during year ended 30 June 2020 is comprised of shares issued as part employee share plans and the dividend reinvestment plan.

The Group announced an unfranked FY2019 final dividend of 3.0 cents per share with an option for dividend reinvestment priced at $4.19 per share on 2 October 2019, followed by an unfranked FY2020 interim dividend of 3.0 cents per share with an option for dividend reinvestment of $2.63 per share, which was announced on 31 March 2020.

Austal established an Employee Share Trust (EST) during FY2019 for the purpose of acquiring, holding and transferring shares in connection with equity based remuneration established by the Company for the benefit of participants in those plans. Austal issued 479,686 shares to the trust during the year ended 30 June 2020.

II Reserves

The reserves are shown within the Consolidated Statement of Changes in Equity for the year ended 30 June 2020.

1. Foreign currency translation reserve (FCTR)

This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

2. Employee benefits reserve

This reserve is used to:

record the value of equity benefits provided to employees and Directors as part of their remuneration, and

record the re-measurement of the retirement benefits liability for the Philippines.

Further information relating to share based payment plans for the Group is provided in Note 34.

3. Cash flow hedge reserve

This reserve records the portion of the gain or loss on hedging instruments in cash flow hedges that are determined to be effective hedges.

4. Common control reserve

This reserve represents the premium paid on the acquisition of historical minority interests in a controlled entity.

5. Asset revaluation reserve

This reserve is used to record increases in the fair value of land and buildings.


Government grants relating to assets



Austal has received grants from various Government bodies in the USA to fund the infrastructure required for the expansion of the Group , Alabama.

The fair value of grants related to assets is credited to a deferred income liability account and is released to the Profit and Loss over the expected useful life of the relevant asset.

The fair value of grants related to expense items is recognised as income over the periods necessary to match the grants on a systematic basis to the costs that they are intended to compensate.

Government grants are only recognised when received or when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

2020 2019

000 000

Deferred grant income

Current

Infrastructure development (3,232)$ (6,445)$

Total (3,232)$ (6,445)$

Non - current

Infrastructure development (54,046)$ (56,214)$

Total (54,046)$ (56,214)$

Total (57,278)$ (62,659)$

Movements in grants

1 July (62,659)$ (66,953)$

Grants received during the year - $ (1,482)$

Amortised to the profit and loss 6,587 9,270

Foreign exchange rate adjustment (1,206) (3,494)

Net movement 5,381$ 4,294$

30 June (57,278)$ (62,659)$



Working capital

Trade and other receivables



Trade unconditional subject only to the passage of time. Trade receivables are non-derivative financial assets

icy for non-derivative financial assets as set out in AASB 9 Financial Instruments.

Trade and other receivables are measured at amortised cost. A gain or loss on trade and other financial assets that is subsequently measured at amortised cost is recognised in the Profit and Loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.

The average credit period on trade receivables ranges from 30 to 45 days in most cases. In determining the recoverability of a trade receivable, the Group used the expected credit loss model as per AASB 9.

The expected credit loss model requires the Group to account for expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets, meaning that a credit default does not need to have occurred before credit losses are recognised.

III Ageing analysis of trade & other receivables

Past due is defined under AASB 9 to mean any amount outstanding for one or more days after the contractual due date. Past due amounts relate to a number of trade receivable balances where for various reasons the payment terms may not have been met. These receivables have been assessed to be fully recoverable.

IV Fair values of trade and other receivables

The carrying amount of the receivables is assumed to be the same as their fair value due to their short term nature.

2020 2019

Trade and other receivables 000 000

Trade amounts owing by unrelated entities 144,302$ 226,020$

Expected credit losses (85) (752)

Total 144,217$ 225,268$

Days outstanding

0-30 31-60 61-90 90+ Impaired Total

30 June 2020 000 141,660$ 711$ 4$ 1,927$ (85)$ 144,217$

30 June 2019 000 195,680 23,462 1,111 5,767 (752) 225,268


Vessel construction and support contracts in progress



Construction and support work in progress for services provided upon something other than the passage of time.

Amounts are generally reclassified to trade receivables when contract performance obligations have been certified or invoiced to the customer.

Progress payments received in advance arise where payment is received prior to work being performed.

III Significant accounting judgements and estimates

Further information of estimates made regarding construction and support contracts is provided in Note 4.

2020 2019

000 000

Work in progress

Construction and support revenue recognised to date 12,561,659$ 11,297,883$

less: Progress payments received and receivable (12,423,524) (11,134,798) Total due from customers 138,135$ 163,085$

Progress payments received in advance

Construction and support revenue recognised to date 791,677$ 584,639$

less: Progress payments received and receivable (886,179) (705,041)

Total due to customers (94,502)$ (120,402)$

Total due from / (to) customers 43,633$ 42,683$



Inventories and work in progress



Stock and finished goods are valued at the lower of cost and net realisable value.

Cost of stock is determined on the weighted average cost basis.

No inventories are expected to be realised more than 12 months after the reporting date.

Further information relating to work in progress is provided in Note 16.

Trade and other payables

I Disclosure


Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

III Fair value of trade and other payables

The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature.

2020 2019

Inventories and work in progress 000 000

Work in progress 138,135$ 163,085$

Other inventory 5,664 3,957 Total 143,799$ 167,042$

2020 2019

000 000

Trade and other payables

Trade and other payables owed to unrelated entities 1 (156,910)$ (202,308)$ Total (156,910)$ (202,308)$

1. Trade payables are unsecured and non-interest bearing.


Infrastructure & other assets

Property, plant and equipment


II Reconciliation of movement for the year

Freehold

Land and Leasehold Plant and Capital

Buildings Improvements Equipment WIP Total

000 000 000 000 000

Balance 30 June 2019

Gross carrying amount at fair value 463,085$ 3,254$ - $ - $ 466,339$

Gross carrying amount at cost - 67,646 260,743 3,238 331,627

Accumulated depreciation and impairment (36,585) (29,578) (143,419) - (209,582)

Net carrying amount 426,500$ 41,322$ 117,324$ 3,238$ 588,384$


Gross carrying amount at fair value 591,314$ - $ - $ - $ 591,314$

Gross carrying amount at cost - 49,886 267,917 2,341 320,144

Accumulated depreciation and impairment (128,027) (9,508) (163,724) - (301,259)

Net carrying amount 463,287$ 40,378$ 104,193$ 2,341$ 610,199$

Freehold

Land and Leasehold Plant and Capital

Buildings Improvements Equipment WIP Total

000 000 000 000 000

Balance 1 July 2018 414,816$ 28,619$ 111,840$ 10,503$ 565,778$

Additions 709$ 55$ 5,485$ 34,544$ 40,793$

Transfer in / (out) 569 19,591 21,997 (42,157) -

Disposals - - (3,934) - (3,934)

Depreciation charge for the year (12,287) (8,396) (19,222) - (39,905)

Impairment - - (1,200) - (1,200)

Revaluation 2,103 - - - 2,103

Effects of foreign exchange 20,590 1,453 2,358 348 24,749

Total 11,684$ 12,703$ 5,484$ (7,265)$ 22,606$

Balance 30 June 2019 426,500$ 41,322$ 117,324$ 3,238$ 588,384$

Additions 287$ - $ 3,332$ 10,292$ 13,911$

Transfer in / (out) 349 4,178 6,325 (10,852) -

Transfers to intangibles - - (2,481) - (2,481)

Disposals - - (331) - (331)

Depreciation charge for the year (12,183) (5,544) (19,461) - (37,188)

Revaluation 42,556 - - - 42,556

Effects of foreign exchange 5,778 422 (515) (337) 5,348

Total 36,787$ (944)$ (13,131)$ (897)$ 21,815$

Balance 30 June 2020 463,287$ 40,378$ 104,193$ 2,341$ 610,199$




Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

Land and buildings are measured at fair value less accumulated depreciation on buildings and any impairment losses recognised after the date of revaluation. Valuations are performed on a regular basis to ensure that the fair value of a revalued asset does not differ materially from its carrying value.

The carrying amount of land and building would be recognised as detailed in the table below if they were measured using the historic cost model.

Any revaluation surplus is recorded in Other Comprehensive Income and credited to the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Profit and Loss, in which case the increase is recognised in the Profit and Loss.

A revaluation deficit is recognised in the Profit and Loss except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Any revaluation reserve relating to the particular asset being sold is transferred to retained earnings upon disposal.

IV De-recognition and disposal

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use.

Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Profit and Loss in the year the asset is derecognised.

2020 2019

000 000

Land and Buildings and Leasehold Improvements valued using cost model

Cost 441,137$ 429,832$

Accumulated depreciation and impairment (100,208) (91,551)

Net carrying amount 340,929$ 338,281$


V Key judgements and accounting estimates

1. Impairment of non-financial assets

The Group assesses whether there is an indication that an asset may be impaired at each reporting date. The Group considered impairment triggers including observable indications, significant market, technological, economic or legal changes that have occurred, significant decreases in market interest rates or market rates of return, the market capitalisation of the Group compared to the net assets of the Group, evidence that any major asset or process is obsolete or damaged and other evidence from internal reporting.

Further information relating to impairment testing of non-current assets is provided in Note 21.

The carrying values of plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate the carrying value of the asset may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset in assessing value in use.

The recoverable amount for an asset that does not generate largely independent cash inflows is determined for the cash-can be estimated to be close to its fair value.

An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.

Impairment losses on plant and equipment are recognised in the Profit and Loss.

The asset or cash-generating unit that suffered an impairment is tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

The key assumptions used to determine the recoverable amount for cash-generating units (CGU) are disclosed and further explained in Note 21.

2. Estimation of useful l ives of assets

The estimation of the useful lives of assets has been based on historical experience. The condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful life are made when considered necessary.

Depreciation is calculated on a straight-line or diminishing value basis over the estimated useful life of the asset.

The following useful lives have been adopted as follows:

Buildings 20 to 40 years.

Plant and Equipment 2 to 10 years.

Leasehold Improvements term of lease.

es and amortisation methods are reviewed, and adjusted at the reporting date as appropriate.



3. Revaluation of land and buildings

The land and buildings consist of shipyard facilities in Australia and USA. The Company determined that these constitute one class of asset under AASB 13, based on the nature, characteristics and risk of the property.

The valuation methodology utilised a market comparison approach based on highest and best use assets.

The independent revaluation is renewed every three to five years. The Company undertakes an assessment in the years in between obtaining independent valuations to ensure that the latest independent valuation remains appropriate and representative of fair value as at the reporting date.

The last independent revaluation of the Australian land and buildings occurred during FY2019. This resulted in an increase in the valuation of $2.103 million.

The last independent revaluation of the USA land and buildings occurred during FY2020. This resulted in an increase in the valuation of $42.556 million.


Intangible assets and goodwill


II Reconciliation of movement for the year

Computer Other

Software Goodwill Intangibles Total

000 000 000 000

Balance 1 July 2019

Cost 23,186$ 12,797$ 4,061$ 40,044$

Accumulated amortisation and impairment (18,930) - (371) (19,301)

Net carrying amount 4,256$ 12,797$ 3,690$ 20,743$


Cost 29,692$ 12,904$ 4,159$ 46,755$

Accumulated amortisation and impairment (23,861) - (702) (24,563)

Net carrying amount 5,831$ 12,904$ 3,457$ 22,192$

Computer Other

Software Goodwill Intangibles Total

000 000 000 000

Balance 1 July 2018 4,467$ 12,543$ 3,802$ 20,812$

Additions 1,556$ - $ - $ 1,556$

Disposals (27) (76) - (103)

Amortisation for the year (1,987) - (314) (2,301)

Effects of foreign exchange 247 330 202 779

Total (211)$ 254$ (112)$ (69)$

Balance 30 June 2019 4,256$ 12,797$ 3,690$ 20,743$

Additions 1,661$ - $ - $ 1,661$

Disposals (3) - - (3)

Transfers from plant and equipment 2,481 - - 2,481

Amortisation for the year (2,526) - (306) (2,832)

Effects of foreign exchange (38) 107 73 142

Total 1,575$ 107$ (233)$ 1,449$

Balance 30 June 2020 5,831$ 12,904$ 3,457$ 22,192$




Intangible assets acquired separately are initially measured at cost and subsequently carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against the Profit and Loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least once per financial year.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which results in a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Comprehensive Income in the expense category consistent with the function of the intangible asset.

is as follows:

1. Computer software

Computer software is initially measured at cost and amortised on a straight-line basis over the estimated useful life of each asset. Impairment testing is conducted annually. Computer software is amortised on a straight-line basis over 2 to 5 years.

2. Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed in a business combination.

Goodwill is measured at cost less any accumulated impairment losses after initial recognition. G Cash-Generating Units (CGU) that are expected to benefit from the combination from the acquisition date for the purpose of impairment testing, irrespective of whether other assets or liabilities acquired are assigned to those units.

Goodwill is tested annually for impairment regardless of whether impairment triggers are identified. The Impairment is determined for goodwill by assessing the recoverable amount of each CGU or group of CGU to which the goodwill relates. An impairment loss is recognised when the recoverable amount of the CGU is less than its carrying amount. Impairment losses relating to goodwill cannot be reversed in future periods.

Goodwill allocated to a cash-generating unit that has a partial disposal of the operation within that unit is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.


Impairment testing of non-current assets

I Review cycle

Non-current assets are reviewed on an annual basis i , to determine whether there is an impairment indicator. An estimate of the recoverable amount is made where an impairment indicator exists.

II Cash generating units (CGU)

The recoverable amounts have been assessed at the CGU level as identified below:

USA

Australasia

III Allocation of assets to CGU

Corporate assets have been allocated to CGU to the extent that they relate to the CGU.

Goodwill, acquired through business combinations has been allocated to the following segments:

USA - a carrying amount of $6.441 million,

Australasia - a carrying amount of $6.463 million.

IV Assessment of recoverable amounts

The recoverable amounts for each CGU, excluding charter vessels that are assessed independently, have been determined based on value in use calculations using 5 year cash flow projections.

Key inputs into the cash flow projection include the volume and profitability of contracted and projected projects. Changes in these inputs may have an impact on the cash flow projections.

The Company concluded that the recoverable amount is greater than the carrying amount of assets and that no impairment charge is required as a result of this analysis.

V Significant accounting judgement and estimates

1. Recoverable amount of the CGU

The following table sets out the key assumptions used to assess the recoverable amounts:

CGU USA Australasia

Growth assumptions Award of projected vessels Award of projected vessels

Perpetuity growth rate 0.0% 0.0%

Pre-tax discount factor 10.5% 10.5%

Inflation on costs 2.5% 2.5%



2. Growth assumptions

Growth assumptions are based on future vessel construction and service projects not yet awarded. The assumptions are based on historical experience of the size of the vessel that customers typically contract and the corresponding average tender pricing.

3. Perpetuity growth rate

Austal has taken a conservative view and included a 0% perpetuity growth rate in calculation of the terminal value.

4. Pre-tax discount factor

Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates.

5. Inflation on costs

Estimates are obtained from published indices for the countries from which materials are sourced, as well as data relating to specific commodities. Forecast figures are used if data is publicly available, otherwise historical material price movements are used as an indicator of future price movements.

6. Sensitivity to changes in assumptions

Any change in the key assumptions used to determine the recoverable amount would result in a change in the assessed recoverable amount. An impairment of assets may result if the variation in assumption has a negative impact on the recoverable amount.

The estimated recoverable amounts of each of the CGU are significantly greater than the carrying value of the assets within the respective CGU. No reasonably foreseeable changes in any of the key assumptions are likely to result in an impairment loss.

7. COVID-19 discussion

The Board assessed a number of scenarios to quantify the potential impact of COVID-19 on the impairment assessment of the Group to understand the point at which an impairment issue may arise. The scenarios included:

Current forecast (Base case)

Various extended periods without the award of new vessels

Curtailment of current programs

The Board was satisfied that there were no indicators of impairment at 30 June 2020.


Investments and other financial assets



The Group classifies its financial assets in the following measurement categories:

Financial Assets to be measured subsequently at fair value (either through Other Comprehensive Income, or through the Profit and Loss); and

Financial Assets to be measured at amortised cost.

The Group measures a financial asset at initial recognition at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset in the case of a financial asset not measured at fair value through the Profit and Loss.

The Group subsequently measures derivative financial instruments at fair value. Gains and losses on derivative financial instruments that do not qualify for hedge accounting are recognised in the Profit and Loss for the period. The effective portion of any change in the fair value of a derivative financial instrument designated as a cash flow hedge is recognised in Other Comprehensive Income and presented in the Cash Flow Hedge Reserve in equity. Amounts recognised in equity are reclassified from reserves into the cost of the underlying transaction and recognised in the Profit and Loss when the underlying transaction affects the Profit and Loss. The ineffective portion of any change in the fair value of the instrument is recognised in the Profit and Loss immediately. Where a derivative financial instrument is designated as a fair value hedge, changes in the fair value of the underlying asset or liability attributable to the hedge risk, and gains and losses on the derivative financial instrument, are recognised in the Profit and Loss for the period.

The Group subsequently measures trade and other receivables or contract receivables at amortised cost.

Collateral in the statement of financial position comprises cash at bank with an original maturity of 1 year or more. Collateral and security deposits are classified as receivables and measured at amortised cost.

III Impairment

The Group applies the simplified approach permitted by AASB 9 for trade and other receivables, and contract receivables and amounts due from equity accounted investments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

2020 2019

000 000

Other financial assets

Collateral 1 12,950$ 11,313$

Security deposits 247 546

Total 13,197$ 11,859$

1. Austal USA has a legal obligation to provide cash collateral to ensure that workers' compensation claims will

be paid if they are upheld.



Other non-current assets



The Group recognised a non-current asset of $7.767 million for research and development (R&D) tax credits at 30 June 2020.

III Unrecognised R&D credits

A non-current asset has not been recognised in relation to $5.248 million of carry forward R&D tax credits that have been generated in the Australian Consolidated Tax Group because there is sufficient uncertainty in

. The Group will continue to assess the recognition criteria against the probability of future taxable profits.

2020 2019

000 000

Research and development credits

Recognised

USA 7,767$ 14,838$

Total 7,767$ 14,838$

Unrecognised

Australia 5,248$ 7,037$

Total 5,248$ 7,037$


Other liabilities

Provisions



Provisions are recognised when:

the Group has a present obligation (legal or constructive) as a result of a past event,

it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and

a reliable estimate can be made of the amount of the obligation.

Provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability if the effect of the time value of money is material.

The increase in the provision due to the passage of time is recognised as a finance cost when discounting is used.

Employee Workers'

Benefits Compensation Warranty Other Total

000 000 000 000 000

Provisions at 30 June 2019 (57,384)$ (3,725)$ (9,276)$ (16,627)$ (87,012)$

Arising during the year (123,879)$ (4,560)$ (6,755)$ (17,706)$ (152,900)$

Utilised 124,592 4,143 6,970 17,253 152,958

Unused amounts reversed 742 21 825 3,908 5,496

Effects of foreign exchange (800) (67) (82) (246) (1,195)

Movement 655$ (463)$ 958$ 3,209$ 4,359$

Provisions at 30 June 2020 (56,729)$ (4,188)$ (8,318)$ (13,418)$ (82,653)$

Employee Workers'

Benefits Compensation Warranty Other Total

000 000 000 000 000

Provisions at 30 June 2019

Current (55,677)$ (3,725)$ (9,276)$ (16,627)$ (85,305)$

Non-current (1,707) - - - (1,707)

Total (57,384)$ (3,725)$ (9,276)$ (16,627)$ (87,012)$

Provisions at 30 June 2020

Current (54,208)$ (4,188)$ (8,318)$ (13,418)$ (80,132)$

Non-current (2,521) - - - (2,521)

Total (56,729)$ (4,188)$ (8,318)$ (13,418)$ (82,653)$



III Information about individual provisions and significant accounting estimates

1. Employee Benefits

Liabilities for wages and salaries, including non-monetary benefits and accumulated sick leave expected to be wholly settled within 12 months of the reporting date are recognised in other payables

eporting date. They are measured at the amounts expected to be paid when the liabilities are settled.

The Group does not expect its long service leave and annual leave benefits provision to be settled wholly within 12 months of each reporting date. The Group recognises a liability for long service and annual leave measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method.

Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

2. Corporate investigations

The Group is assisting ASIC and certain US Regulatory Authorities into certain market disclosures made in late CY2015 and mid CY2016. An $11.253 million provision has been recorded based on the best estimate of the probable incremental professional services costs relating to this matter. The Group has had to apply significant judgement when considering whether, and how much, to provide for costs. The provision could change substantially over time as new facts emerge and the investigations progress as a result of the high level of estimation uncertainty.

legal costs will be recoverable under its Directors & Officers insurance cover. The Group has not recognised the contingent asset as a receivable at 30 June 2020 because the receipt of the amount is dependent on the insurance claim approval process.

The Group is not aware of any wrongdoing, nor is it aware of all of the specific matters currently being investigated and accordingly no provision has been made for any penalties or damages that may arise from the investigations. Further information is provided in Note 29.

3.

and claims incurred but not reported at the balance date.

4. Warranties

A provision for warranty is made upon delivery of each vessel based on the estimated future costs of warranty repairs. made on similar vessels within their warranty periods. The Company subsequently monitors the provision to ensure it is adequate for all known and an estimation for unknown warranty claims. Any increases or decreases in the provision are recognised in the Profit and Loss for the period.

5. Dividends

A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date. An interim dividend of 3.0 cents per share was issued for the half year 31 December 2019 (FY2019 H1: 3.0 cents per share).

An unfranked dividend of 5.0 cents per share is proposed and not recognised as a liability for the year ended 30 June 2020 (FY2019 H2: 3.0 cents per share).


Financial risk management

Financial risk management

This note explains the

performance. Current year Profit and Loss information has been included where relevant to add further context.

Objectives and policy

nancial risk management policy is to reduce the impacts of external threats to

the Group and to afford the opportunity to seek further investments.

Ultimate responsibility for identification and control of financial risks rests with the Board of Directors. The Board

reviews and agrees policies for managing each of the risks identified below, including hedging cover of foreign

currency, credit allowances and future cash flow forecast projections.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis

of measurement and the basis on which income and expenses are recognised, in respect of each class of financial

asset, financial liability and equity instrument are disclosed in the relevant notes to the financial statements.

I Market risk

Market risk earnings, cash flows and carrying values of its financial statements.

1. Interest rate risk

Source of risk

The Austal Group is exposed to interest rate risk from changes in interest rates on its outstanding borrowings, derivative instruments and investments from the possibility that changes in interest rate risk will affect future cash flows or the fair value of financial instruments.

Risk Exposure arising from Monitoring Management

Market risk - interest rate Long-term borrowings at variable rates Sensitivity analysis Sustainable gearing levels

across business cycles

Market risk - interest rate Cash, trade receivables and derivative financial Sensitivity analysis Excess cash invested in

instruments high-interest deposit accounts

Market risk - foreign currency Future commercial transactions and Cash flow forecast, Forward foreign exchange

recognised financial assets and liabilities not Sensitivity analysis contracts and forward currency

denominated in the functional currency options

Credit risk Cash, short term deposits, trade receivables Ageing analysis, Monitoring of credit allowances

and derivative financial instruments Credit ratings

Liquidity Borrowings, trade payables and derivative Rolling cash flow forecasts Availability of committed credit

financial instruments lines and borrowing facilities



Risk mitigation

The cash, debt and bank covenants of the Group are monitored and re-forecasted on a monthly basis in order to monitor interest rate risk. A variable interest rate policy is maintained to ensure repayments are carried out as soon as practicable, where fixed interest rates are less flexible. Consideration is given to potential renewal of existing positions and alternative financing structures.

Exposure

The Group had the following exposures to interest rate risk at the end of the reporting period:

Sensitivity

Profit and Loss is sensitive to higher or lower interest income from cash and cash equivalents and interest expenses on borrowings as a result of changes in interest rates. There would be no material impact on other components of Equity as a result of changes in interest rates.

The following table demonstrates the sensitivity to a reasonable change in interest rates to the Profit and Loss after tax. A normal level of volatility has been assessed as 100 basis points and the sensitivity below has been calculated on that basis. The Board notes that COVID-19 caused volatility in excess of normal levels during FY2020.

The sensitivity analysis assumes that the change in interest rates is effective from the beginning of the financial year and the balances are constant over the year.

2020 2019

000 000

Financial assets

Cash and cash equivalents 396,667$ 275,665$

Derivative contracts 2,404 2,190

Total 399,071$ 277,855$

Financial liabilities

Interest bearing liabilities (165,180)$ (173,754)$

Derivative contracts (9,378) (16,544)

Total (174,558)$ (190,298)$

Net exposure 224,513$ 87,557$

2020 2019

000 000

Post tax gain / (loss)

AUD

+1.00% (100 basis points) 944$ 966$

-1.00% (100 basis points) (944) (966)


2. Foreign currency risk

Source of risk

The Group is exposed to currency risk on sales, purchases or components for construction that are denominated in a currency other than the respective functional currencies of the Group entities, primarily Australian Dollars (AUD) for the Australian operation and US Dollars (USD) for the USA, Philippines and Vietnam operations. The Group is also exposed to foreign exchange movements (primarily in USD) on the translation of the earnings, assets and liabilities of its foreign operations.

s are primarily denominated in USD, AUD and EUR.

Risk mitigation

ign exchange used to convert foreign currency revenues and expenses and assets or liabilities to the functional currency of each Group entity by utilising the following techniques:

negotiation of contracts to adjust for adverse exchange rate movements.

using natural hedges.

using financial instruments, such as foreign currency exchange contracts and swaps.



Exposure

The financial assets and liabilities exposed to foreign currency risk at 30 June 2020 were:

All values are stated in AUD equivalent

AUD USD 1 EUR 2 Other Total

Balance 30 June 2020 000 000 000 000 000

Financial assets

Cash and cash equivalents - $ 4,683$ 23$ 1,262$ 5,968$

Trade and other receivables - - - 10 10

Derivatives 2,401 3 - - 2,404

Total 2,401$ 4,686$ 23$ 1,272$ 8,382$


Trade and other payables (3)$ (4)$ (10)$ (1,320)$ (1,337)$

Derivatives (558) (8,819) (0) - (9,377)

Total (561)$ (8,823)$ (10)$ (1,320)$ (10,714)$

All values are stated in AUD equivalent

AUD USD 1 EUR 2 Other Total

Balance 30 June 2019 000 000 000 000 000

Financial assets

Cash and cash equivalents - $ 33,634$ 31$ 1,537$ 35,202$

Trade and other receivables 84 84

Derivatives 1,044 362 784 - 2,190

Total 1,044$ 33,996$ 815$ 1,621$ 37,476$


Trade and other payables - $ (23)$ (20)$ (1,756)$ (1,799)$

Derivatives (4,982) (11,560) (1) - (16,543)

Total (4,982)$ (11,583)$ (21)$ (1,756)$ (18,342)$

1. Spot USD / AUD exchange rate at 30 June 2020 was 0.6902 (30 June 2019: 0.7020)

2. Spot EUR / AUD exchange rate at 30 June 2020 was 0.6143 (30 June 2019: 0.6183)


Sensitivity

A 10 per cent strengthening of the Australian Dollar against the following currencies would have increased / (decreased) net profit after tax and equity below at balance date with all other variables held constant as illustrated:

A 10 per cent weakening of the Australian Dollar would have the equal but opposite effect on the above currencies to the amounts shown above, on the basis of all other variable held constant.

The foreign currency translation of USD denominated net assets would have significantly affected the equity at the reporting date. The Group had US$450.5 million of USD denominated net assets at 30 June 2020 (US$550.3 million at 30 June 2019).

Summary of forward foreign exchange contracts

The following table summarises the AUD equivalent value of the forward foreign exchange agreements by currency. Foreign currency amounts are translated at rates current at the reporting date.

BS ivalent of commitments to sell foreign currencies.

NPAT higher / (lower) Equity higher / (lower)

2020 2019 2020 2019

000 000 000 000

Judgement of reasonable possible movements

USD 290$ (1,567)$ (37,041)$ (40,762)$

EUR - (34) 3,350 (8,731)

1. Spot USD / AUD exchange rate at 30 June 2020 was 0.6902 (30 June 2019: 0.7020)

2. Spot EUR / AUD exchange rate at 30 June 2020 was 0.6143 (30 June 2019: 0.6183)

2020 2019

Buy Sell Buy Sell

Average AUD Average AUD Average AUD Average AUD

Forward Equivalent Forward Equivalent Forward Equivalent Forward Equivalent

Rate '000 Rate '000 Rate '000 Rate '000

USD Buy USD (Sell USD) Buy USD (Sell USD)

less than 3 months 0.7184 7,244$ 0.6931 (24,121)$ 0.7223 20,664$ 0.7201 (29,540)$

3 - 12 months 0.7203 9,007 0.7138 (51,138) 0.7444 33,246 0.7372 (112,610)

> 12 months 0.7217 6,800 0.7249 (64,927) 0.7209 15,542 0.7309 (172,221)

Total 23,052 (140,186) 69,451 (314,371)

EUR Buy EUR (Sell EUR) Buy EUR (Sell EUR)

less than 3 months 0.6065 472$ 0.6177 (17,072)$ 0.6109 13,197$ 0.6312 (15,088)$

3 - 12 months 0.5887 27,488 0.6048 (31,827) 0.6066 50,021 0.6271 (86,661)

> 12 months 0.5736 53,497 0.5965 (67,243) 0.5852 134,971 0.6135 (32,166)

Total 81,457 (116,142) 198,189 (133,915)



II Credit risk

Credit risk is the risk of financial loss to the Group as a result of customers or counterparties to financial assets failing to meet their contractual obligations.

1. Source of risk

The Group is exposed to counterparty credit risk from trade and other receivables and financial instrument contracts that are outstanding at the reporting date.

2. Risk mitigation

Trade receivables

The Group only trades with recognised, creditworthy third partiescustomers who wish to trade on credit terms are subject to credit verification procedures, which are conducted internally. The Group, while exposed to credit related losses in the event of non-performance by counterparties to financial instruments, does not expect counterparties to fail to meet their obligations given their credit ratings.

The Group minimises concentrations of credit risk and the risk of default of counterparties in relation to cash and cash equivalents and financial instruments by spreading them amongst a number of financial institutions.

Vessel sales contracts are structured to ensure that the Group is paid milestone progress payments from the client to cover the ongoing cost of the vessel construction.

Financial instruments

that funds will not be available when required whilst at the same time obtaining the maximum return s policy is to restrict its investment of surplus cash funds to financial

institutions with a Standard and Poor credit rating of at least A-2, and for a period not exceeding 3 months to manage this risk. The Group is able to undertake investments in short term deposits to achieve this objective.

Other financial assets

Group, which comprise cash and cash equivalents and certain derivative instruments, is equal to the carrying amount of these instruments. The maximum exposure to credit risk at the reporting date is disclosed in Note 15.

Cash and term deposits are predominantly held with two tier-one financial institutions which are considered to be low credit risk.


III Liquidity risk

Liquidity risk is the risk that the Group is not able to refinance its debt obligation or meet other cash outflow obligations when required.

1. Source of risk:

Exposure to liquidity risk derives from thliabilities that it holds.

2. Risk mitigation:

The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet financial commitments in a timely and cost-effective manner.

to determine the forecast liquidity position and maintain appropriate liquidity levels. Critical assumptions include input costs, project pipeline, exchange rates and capital expenditure.

The Group aims to hold a minimum liquidity buffer of $75 million between cash on hand and undrawn non-current committed funding to meet any unforeseen cash flow requirements. Further information relating to of these facilities, is provided in Note 10 and Note 11.



3. Exposure

The contractual cash flow and maturities of financial liabilities, including interest payments are as follows:

The Group had $50.000 million (FY2019: $50.000 million) of unused cash loan credit facilities available for immediate use at the reporting date and $396.667 million (FY2019: $275.665 million) in cash and cash equivalents, which can be used to meet its liquidity needs.

Years to maturity

0 - 1 1 - 5 > 5 Total1

000 000 000 000


Derivative financial assets / (liabilities)

Outflow (144,609)$ (142,379)$ - $ (286,988)$

Inflow 142,627 137,733 - 280,360

Net derivative financial assets / (liabilities) (1,982)$ (4,646)$ - $ (6,628)$

Non-derivative financial liabilities

Trade and other payables (157,410)$ - $ - $ (157,410)$

Go Zone Bond facility - (126,837) - (126,837)

Finance leases (938) (7,666) - (8,604)

Vessel finance for CCPB 9 & 102 (8,720) (32,206) - (40,926)

Total (167,068)$ (166,709)$ - $ (333,777)$

Years to maturity

0 - 1 1 - 5 > 5 Total1

Balance 30 June 2019 000 000 000 000

Derivative financial assets / (liabilities)

Outflow (292,059)$ (222,028)$ (1,305)$ (515,392)$

Inflow 284,793 208,320 1,121 494,234

Net derivative financial assets / (liabilities) (7,266)$ (13,708)$ (184)$ (21,158)$

Non-derivative financial liabilities

Trade and other payables (202,308)$ - $ - $ (202,308)$

Go Zone Bond facility - (122,287) - (122,287)

Finance leases (2,413) (257) - (2,670)

Vessel finance for CCPB 9 & 102 (43,032) (5,766) - (48,798)

Total (247,753)$ (128,310)$ - $ (376,063)$

1. Contractual cash flows include interest

2. Contractual cashflows are equal to the residual value of the CCPB 9 & 10 vessels. Further information is provided in Note 11.


IV Offsetting financial instruments

The Group presents its assets and liabilities on a gross basis. Derivative financial instruments entered into by the Group are subject to enforceable master netting arrangements such as the International Swaps and Derivatives Associations (ISDA) master netting agreement. All outstanding transactions under an ISDA agreement are terminated in certain circumstances, for example, when a credit event such as a default occurs. The termination value is assessed and only a single net amount is payable in settlement of all transactions.

The amounts set out in the liquidity risk table represent the derivative financial assets and liabilities of the Group that are subject to those arrangements and are presented on a gross basis.

Derivatives and hedging

I Cash flow hedges

The effective portion of any change in the fair value of a derivative financial instrument designated as a hedge of cash flows relating to a highly probable forecast transaction (income or expense) is recognised in Other Comprehensive Income and presented in the Cash Flow Hedge Reserve in equity. The ineffective portion of any change in the fair value of the instrument is recognised in the Profit and Loss immediately.

II Fair value hedges

Where a derivative financial instrument is designated as a fair value hedge, changes in the fair value of the underlying asset or liability attributable to the hedged risk, and gains and losses on the derivative instrument, are recognised in the Profit and Loss for the period.

III Fair value through profit and loss

Gains and losses on derivative financial instruments that do not qualify for hedge accounting are recognised in the Profit and Loss for the period.

IV Financial liabil ities

Loans, overdrafts, and trade and other payables are measured at amortised cost, except where fair value hedge accounting is applied.



Fair value measurements

I Fair value

he following techniques depending on the type of financial instrument as follows:

The fair value of financial assets and financial liabilities traded in active markets is the quoted market price at the reporting date.

The fair value of forward exchange contracts is calculated using discounted cash flows, reflecting the credit risk of various counterparties. Future cash flows are calculated based on the contract rate, observable forward interest rates and foreign exchange rates. Adjustments for the currency basis are made at the end of the reporting period.

The nominal value less expected credit losses of trade receivables and payables are assumed to approximate their fair values due to their short term maturity.

1. Fair value hierarchy

The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data.

2. Fair value of financial assets and liabilities carried at amortised cost

Cash and cash equivalents, trade and other receivables, and trade and other payables are carried at amortised cost which equals their fair value.

Interest bearing liabilities are carried at amortised cost and have a carrying value of $165.180 million (30 June 2019: $173.754 million). Further information is provided in Note 11.

The fair value of the interest bearing financial liabilities at 30 June 2020 was $(6.974) million based on the level 2 valuation methodology (30 June 2019: $(14.355) million).

Level 1 Level 2 Level 3 Total

000 000 000 000


Financial assets

Derivatives - $ 2,404$ - $ 2,404$


Derivatives - $ (9,378)$ - $ (9,378)$


Financial assets

Derivatives - $ 2,190$ - $ 2,190$


Derivatives - $ (16,544)$ - $ (16,544)$


Unrecognised items

Commitments and contingencies

I Commitments

1. Operating lease commitments

AASB 16 Leases will be effective in reporting periods commencing 1 July 2019 onwards requiring lessees to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

Further information relating to AASB 16 is provided in Note 2.

2. Guarantees

Austal has a Syndicated Facility Agreement which includes a $280.000 million revolving credit facility. The entire revolving credit facility can be used for non-financial contingent instruments, up to $50.000 million of any unused part of the facility can be used for cash advances and up to $20.000 million of any unused part of the facility can be used for financial contingent instruments.

Austal had $250.000 million of uncommitted and unsecured Surety facilities for the issuance of non-financial contingent instruments to support commercial vessel contracts at 30 June 2020.

Bank performance guarantees and Sureties are issued to support concepts such as refund payment guarantees, performance bonds and warranty bonds. The Group had $(466.353) million of issued guarantees at 30 June 2020 (FY2019: $(185.163) million).

Further information relating to interest bearing loans and borrowings is provided in Note 11.

2020 2019

000 000

Operating lease commitments

Future minimum rentals payable under non-cancellable leases:1

Within one year - $ (3,610)$

After one year but not more than five years - (4,164)

More than five years - (3,887)

Total - $ (11,661)$

Capital commitments

Intangibles (17,500)$ - $

Property, plant and equipment (330) (1,496)

Total (17,830)$ (1,496)$

Guarantees

Bank performance guarantees2 (222,695)$ (58,900)$

Sureties (243,658) (126,263)

Total (466,353)$ (185,163)$

1. Operating lease commitments have been reclassified in accordance with AASB 16 Leases.

2. The bank performance guarantees are secured by a mortgage over land and buildings and floating charges over cash, receivables,

work in progress and plant and equipment.



II Contingencies

The Group occasionally receives claims and writs for damages and other matters arising from its operations in the course of its normal business.

The Group entities may also have potential financial liabilities that could arise from historical commercial contracts. No material losses are anticipated in respect of any of those contingencies.

A specific provision is made where it is deemed appropriate in the opinion of the directors, otherwise the directors deem such matters are either without merit or of such kind or involve such amounts that would not have a material adverse effect on the operating results or financial position of the economic entity if disposed of unfavourably.

1. Vessel delivery postponement

Extended Government imposed comprehensive quarantine measures implemented as a result of COVID-19, have postponed a potential cancellation right notwithstanding the absence of default by either party. Despite this contractual entitlement, both parties have acknowledged the unique circumstances brought about by the COVID-19 virus and continue to cooperate constructively to explore ways to avoid this outcome and the customer has repeatedly advised they have no intention to cancel the contract.

Cancellation would require Austal to repay milestone payments received to date with Austal then taking possession of the vessel for resale.

2. Other

The Directors are not aware of any other material contingent liabilities in existence as at 30 June 2020 requiring disclosure in the financial statements.

Corporate investigations

In January 2019, ASIC advised the Company that it had opened a preliminary investigation into certain market disclosures in late CY2015 and mid CY2016. US Regulatory authorities, including the Securities Exchange Commission, have also commenced separate but apparently related investigations. The Company provided an update on the state of these investigations in Note 29 to the financial statements in its 2019 Annual Financial Report (August 2019 Update), and again in Note 10 to the H1 interim report in February 2020 (February 2020 Update).

Since the February 2020 Update, the progress of the investigation centred on ASIC collecting further information from individuals and the Company, and on resolving disagreements regarding the application of legal privilege to

efforts to agree on these matters, the application of legal privilege over many of these documents remains unresolved and the matter was brought before the Federal Court in Victoria for determination. Determination was scheduled for June 2020 however the matter was delayed due to COVID-19 restrictions. Following continued discussions between ASIC and the Company, this issue is now expected to be resolved via the appointment of an independent expert in the second half of calendar year 2020.

In relation to the substantive investigation, Austal continues its efforts to cooperate with regulators in Australia and the USA and other than the legal privilege matters discussed above, the matters being investigated have not substantively changed since the February 2020 Update, largely due to restrictions brought about by the COVID-19 pandemic. The Group is unable to predict what action, if any, might be taken in the future as a result of these matters or how long they may take to resolve. Depending on the outcome of the investigations, authorities in Australia or the USA may in future elect to pursue formal proceedings against Group companies or some of its officers. While the Group is not aware of any wrongdoing or all of the specific matters currently being investigated, it is possible that those proceedings could lead to civil or criminal penalties, damages, and / or suspension or debarment from future US Government contracts, which could have a material adverse effect on its consolidated financial position, results of operations, or cash flows.


The Company notes that as far as it is aware, the investigation has not impacted Austalprincipal customer in the USA and in fact, the Group continues to work closely with the US Department of Defence,

million to implement a steel shipbuilding capability to complement existing aluminium shipbuilding facilities.

The Group had to apply significant judgement when considering whether and how much to provide for costs. The provision could change over time as new facts emerge and the investigations progress. The prolonged nature of the investigations and significant resourcing required have driven an increase in the provision.

The Group is not aware of any wrongdoing or all of the specific matters currently being investigated and accordingly no provision has been made for any penalties or damages that may arise from the investigations.

The provision is recorded based on the best estimate of the probable incremental professional services costs relating to this matter. Further information is provided in Note 24.

Events after the balance date

I Dividend proposed

An unfranked final dividend of 5.0 cents per share has been proposed for FY2020 (FY2019 final: 3.0 cents per share, unfranked).

II Modern American Recycling and Repair Services (MARRS) Purchase Agreement

Austal entered into an agreement with MARRS to acquire over 15 acres of waterfront land, buildings and assets including an existing dry dock on the MARRS Mobile riverfront property in Mobile, Alabama on 21 August 2020.

The acquisition will water berthing capability in support of future new construction efforts including steel ships, whilst also providing Austal USA with increased service and repair capacity in Mobile.

The acquisition is subject to a number of conditions that are required to be satisfied before completion. The acquisition price is under US$10 million and will be funded from cash holdings.

Further information is provided in the ASX announcement dated 21 August 2020.



The Group, management and related parties

Parent interests in subsidiaries

The consolidated financial statements include the financial statements of Austal Limited and the subsidiaries listed in the following table.

Equity Interest

Company Country 2020 2019

Austal Ships Pty Ltd Australia 100% 100%

Austal Cyprus Ltd Cyprus 100% 100%

Austal Egypt LLC Egypt 100% 100%

Austal Muscat LLC Oman 100% 100%

Austal Service Pty Ltd Australia 100% 100%

Austal Service Darwin Pty Ltd Australia 100% 100%

Hydraulink (NT) Pty Ltd Australia 100% 100%

KM Engineering (NT) Pty Ltd Australia 100% 100%

Austal Systems Pty Ltd Australia 100% 100%

Austal UK Ltd United Kingdom 100% 100%

Austal Holdings Vietnam Pty Ltd Australia 100% 100%

Austal Viet Nam Co Ltd Vietnam 100% 100%

Austal Holdings Inc USA 100% 100%

Austal USA LLC USA 100% 100%

Austal USA Service LLC USA 100% 100%

ElectraWatch Inc USA 100% 100%

Austal Philippines Pty Ltd Australia 100% 100%

Austal Middle East Pty Ltd Australia 100% 100%

Austal Holdings China Pty Ltd Australia 100% 100%

Austal Subic Bay Holdings Pty Ltd 1 Australia 100% 100%

Austal Australasia Pty Ltd 2 Australia 100% 100%

Seastate Pty Ltd Australia 100% 100%

1. Previously named Oceanfast Luxury Yachts Pty Ltd

2. Previously named Oceanfast Pty Ltd


I Investment in joint venture

The investment in Aulong joint venture represents the Group's 40% interest in the Chinese joint venture, Aulong Shipbuilding Co Ltd (Aulong). The remaining 60% of the joint venture is held by Chinese company Jianglong Shipbuilding Co Ltd.

The Board has determined to maintain the carrying amount at the historical cost of investment until Aulong declares dividends or displays any signs of impairment, at which time the carrying amount will be adjusted accordingly.

No dividends or impairments have occurred during FY2020 and therefore the Profit and Loss recognised is $0.000 million (FY2019: $(0.000) million).

Related party disclosures

Group policy is that all transactions with related parties are conducted on commercial terms and conditions.

No related party transactions occurred with the consolidated entity other than the remuneration of Directors and KMP and the matters disclosed in this report.

KMP compensation

Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 31.

2020 2019

Investment In Joint Venture 000 000

Investment in Aulong Shipbuilding Co Ltd Joint Venture 1,729$ 1,729$

Total 1,729$ 1,729$

2020 2019

000 000

Short-term employee benefits 4,947$ 4,757$

Post-employment benefits 172 174

Long term benefits 31 36

Share-based payments 1,178 3,087

Total 6,328$ 8,054$



Share based payments

I Performance rights

The following changes in performance rights took place during the year:

The Board has the discretion to decide if performance rights will lapse or vest.

II Service rights

The following changes in service rights took place during the year:

Service rights were introduced in FY2020 to offer a long-term incentive to non-KMP. Service rights have a vesting period of 5 years. The only vesting criteria is fulfilment of the 5 year service period. 330,704 service rights were issued in FY2020.

III Recognition - equity settled transactions

The Group provides benefits to employees (including KMP) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions).

Equity settled benefits have been provided to senior management and Directors under the following plans in the current and prior years:

The Long Term Incentive Plan (LTI Plan)

The Short Term Incentive Plan (STI Plan)

NED share rights

No account is taken of any performance conditions, other than conditions linked to the price of the shares of Austal Limited (market conditions) if applicable in valuing equity settled transactions.

The cost of these equity settled transactions with employees is recorded by reference to the fair value at the date at which they are granted. The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

Balance at Forfeited Balance at

Grant 30 June 2019 Issued Vested / Lapsed 30 June 2020 Expiry date

FY2018 2,363,476 - (2,363,476) - - 30 Jun 2020

FY2019 2,656,839 - - (523,554) 2,133,285 30 Jun 2021

FY2020 - 1,229,304 - (244,622) 984,682 30 Jun 2022

Total 5,020,315 1,229,304 (2,363,476) (768,176) 3,117,967

Balance at Forfeited Balance at

Grant 30 June 2019 Issued Vested / Lapsed 30 June 2020 Expiry date

FY2020 - 338,677 - (7,973) 330,704 30 Jun 2024

Total - 338,677 - (7,973) 330,704


The cumulative expense recognised for equity settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that will ultimately vest in the opinion of the Directors of the Group. This opinion is formed based on the best available information at the reporting date. No adjustment is made for the likelihood of market performance conditions being met because the effect of these conditions is included in the determination of fair value at grant date. The Profit and Loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. An expense is recognised as if the terms had not been modified. An expense is also recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

An equity settled award that is cancelled is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately, however, cancelled awards and new awards are treated as if they were a modification of the original award if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, as described in the previous paragraph.

Shares in the Group held by the Employee Share Trust (EST) are classified and disclosed as Reserved Shares and deducted from equity in the Statement of Changes in Equity. Further information relating to Reserved Shares is provided in Note 13.

IV Recognised share-based payment expenses

The expense recognised for share based payments during the year is shown in the table below:

V Significant accounting judgements and estimates

The Group is required to estimate the fair value of equity-settled share-based payment transactions with employees at the grant date. Estimating the fair value requires determination of the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share rights, volatility and dividend yield.

The Group has applied the Black Scholes option pricing model to estimate the fair value of the rights with non-market based vesting conditions. A hybrid employee share option pricing model and the Monte Carlo simulation have been applied to estimate the fair value of rights with market based vesting conditions.

2020 2019

000 000

Share-based payments expense

Expense arising from equity-settled share-based payment transactions (4,599)$ (5,975)$



Parent entity information

Information relating to Austal Limited, the parent entity, is detailed below:

Austal Limited provides parent company guarantees in respect of contract performance by various members of the Austal Group including Austal USA LLC, Austal Ships Pty Ltd, Austal Philippines Pty Ltd and Austal Holdings Vietnam Pty Ltd.

2020 2019

Balance sheet 000 000

Assets

Current 60,688$ 82,655$

Non - current 300,842 310,903

Total 361,530$ 393,558$

Liabilities

Current (14,197)$ (7,434)$

Non - current (16,237) (18,641)

Total (30,434)$ (26,075)$

Net assets 331,096$ 367,483$

Equity

Contributed equity 135,340$ 130,570$

Employee benefits reserve 9,881 8,498

Asset revaluation reserve 12,128 12,128

Cash flow hedge reserve 44 64

Retained earnings 173,703 216,223

Total 331,096$ 367,483$

Income

Net profit / (loss) after tax (21,131)$ 59,359$

Total comprehensive income (21,151) 60,866

132 Austal Limited |

declaration

I state in accordance with a resolution of the Directors of Austal Limited, that:

In the opinion of the Directors:

The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including:

cial position at 30 June 2020 and of its performance for the year ended on that date; and

Complying with Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001.

The financial Statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2.

In the opinion of the Directors, there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable at the date of this declaration.

This declaration has been made after receiving the declarations required to be made to the Directors in accordance with sections 295A of the Corporations Act 2001 for the financial period ending 30 June 2020.

John Rothwell AO

Chairman

on behalf of the Board

21 August 2020


Austal Limited | Independent audit report to the members of Austal Limited 133

Independent audit report to the members of Austal

Limited

Independent Auditor’s Report to the members of

Austal Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Austal Limited (the “Company”) and its subsidiaries

(the “Group”), which comprises the consolidated statement of financial position as at 30 June 2020,

the consolidated statement of profit or loss and other comprehensive income, the consolidated

statement of changes in equity and the consolidated statement of cash flows for the year then ended,

and notes to the financial statements, including a summary of significant accounting policies, and the

directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the

Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its

financial performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under

those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial

Report section of our report. We are independent of the Group in accordance with the auditor

independence requirements of the Corporations Act 2001 and the ethical requirements of the

Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional

Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have

also fulfilled our other ethical responsibilities in accordance with the Code.

Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000

GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au

134 Austal Limited | Independent audit report to the members of Austal Limited

We confirm that the independence declaration required by the Corporations Act 2001, which has been

given to the directors of the Company, would be in the same terms if given to the directors as at the

time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance

in our audit of the financial report for the current period. These matters were addressed in the context

of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not

provide a separate opinion on these matters.

Key audit matter How the scope of our audit responded to

the Key Audit Matter

Revenue recognition

For the year ended 30 June 2020

construction revenue recognised totals

$1.7 billion as disclosed in Note 4.

Construction revenues are recognised

over time as performance obligations are

fulfilled over time.

Management judgement is required due

to the number and type of estimation

events over the course of a contract life,

the unique nature of individual contract

terms leading to complex and

judgemental revenue recognition from

contracts, including the:

Determination of stage of

completion and measurement of

progress towards satisfaction of

performance obligations;

Estimation of total contract

revenue and costs including the

estimation of cost contingencies

(which incorporate risk

contingencies, the most significant

element is in relation to the LCS

program in Austal USA);

Determination of contractual

entitlement and assessment of the

probability of customer approval

of variations and acceptance of

claims; and

Our audit procedures included, but were not

limited to:

Evaluating the design and operating

effectiveness of processes and

relevant controls in respect of the

underlying project costs and the

recognition of revenue from contracts

respectively, including:

o The contract acceptance

process; and

o The preparation, review and

authorisation of monthly

project reports for all

significant contracts.

Reading relevant agreements to

understand the key terms and

conditions, and confirming our

understanding with management;

Testing on a sample basis, contracts

for delay and other risks, contract

percentage of completion,

appropriateness of cost contingencies,

history of contract issues and

significant unapproved variations or

claims;



Estimation of project completion

date.

Assessing the accuracy of the forecast

costs to complete based on:

o The costs incurred to date;

o Historical budgeting accuracy;

o Physical inspection of key

vessels using our internal

engineering specialists;

o Inquiry of key project

managers and executives; and

o Review of correspondence

with customers.

Evaluating changes in profit margin

on material contracts from prior

periods; and

Assessing variations and claims

including review of correspondence

with customers concerning the merits

and status of those variations and

claims.

We also assessed the appropriateness of the

disclosures in Note 4 to the financial

statements.

Taxation

The Group’s geographic operations

resulted in an income tax expense

totalling $34.5 million across two main

jurisdictions, being the USA and Australia

for the year ended 30 June 2020.

As at 30 June 2020 the carrying value of

deferred tax assets recognised in relation

to the Group’s USA Research and

Development (R&D) credits was

$7.7 million (refer Note 23), whilst

unused tax losses and R&D credits in

Australia for which no deferred tax assets

have been recognised equated to

$5.2 million and $5.5 million respectively.

In addition, the Group continue to pay

additional tax in relation to intercompany

royalties between the USA and Australia

(refer Note 9).

Significant judgement is required to

assess:

The extent to which R&D credits

will be utilised;

Our audit procedures included, but were not

limited to:

Engaging our tax specialists to assess

the Group’s tax-related balances and

the underlying assumptions and

calculations including, evaluating the

available R&D credits and utilisation

profile;

Evaluating the latest Board approved

budget with management’s forecast of

future assessable profits and testing

on a sample basis the forecast model

for mathematical accuracy;

Assessing the independence,

competence and objectivity of the

Group’s tax advisors and evaluating

correspondence between the Group

and those advisors; and

Testing the underlying accuracy of the

tax effect calculations.


The recoverability of carry

forward tax losses and the extent

to which tax losses will be

utilised; and

The remaining uncertainty in

relation to the outcome of the

Group’s objection to the

Australian Tax Office (ATO) audit

position with respect to the

royalties.


disclosures in Note 9 and Note 23 to the

financial statements.

Provisions

As disclosed in Note 24, the Group

recognised a provision of $11.3 million as

at 30 June 2020 for the probable

incremental professional services costs

(“costs”) relating to the regulatory

investigations set out in Note 29.

The Group had to apply significant

judgement when considering whether and

how much to provide for costs. As a result

of the high level of estimation uncertainty

the provision could change substantially

over time as new facts emerge and the

investigations progress.

Our procedures included, but were not limited

to the following:

Discussing the potential costs with in-

house legal counsel, other

management and the directors;

Challenging the assumptions and the

basis for the provision; and

Where possible, corroborating the

assumptions to external sources and

input from the Group’s professional

advisors.


disclosures in Note 24 to the financial

statements.

Other Information

The directors are responsible for the other information. The other information comprises the

information included in the Group’s annual report for the year ended 30 June 2020 but does not

include the financial report and our auditor’s report thereon. The annual report is expected to be

made available to us after the date of this auditor's report.

Our opinion on the financial report does not cover the other information and we will not express any

form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information

and, in doing so, consider whether the other information is materially inconsistent with the financial

report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this

other information, we are required to report that fact. We have nothing to report in this regard.



Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a

true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001

and for such internal control as the directors determine is necessary to enable the preparation of the

financial report that gives a true and fair view and is free from material misstatement, whether due

to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group

to continue as a going concern, disclosing, as applicable, matters related to going concern and using

the going concern basis of accounting unless the directors either intend to liquidate the Group or to

cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is

free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with the Australian Auditing Standards will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material

if, individually or in the aggregate, they could reasonably be expected to influence the economic

decisions of users taken on the basis of this financial report.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional

judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to

fraud or error, design and perform audit procedures responsive to those risks, and obtain

audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of

not detecting a material misstatement resulting from fraud is higher than for one resulting

from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,

or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by the directors.

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting

and, based on the audit evidence obtained, whether a material uncertainty exists related to

events or conditions that may cast significant doubt on the Group’s ability to continue as a

going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditor’s report to the related disclosures in the financial report or, if such

disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditor’s report. However, future events or conditions

may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial report, including the

disclosures, and whether the financial report represents the underlying transactions and

events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities

or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain

solely responsible for our audit opinion.


We communicate with the directors regarding, among other matters, the planned scope and timing

of the audit and significant audit findings, including any significant deficiencies in internal control that

we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, actions

taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most

significance in the audit of the financial report of the current period and are therefore the key audit

matters. We describe these matters in our auditor’s report unless law or regulation precludes public

disclosure about the matter or when, in extremely rare circumstances, we determine that a matter

should not be communicated in our report because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 31 to 59 of the Directors’ Report for the

year ended 30 June 2020.

In our opinion, the Remuneration Report of Austal Limited, for the year ended 30 June 2020, complies

with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the

Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility

is to express an opinion on the Remuneration Report, based on our audit conducted in accordance

with Australian Auditing Standards.

Deloitte Touche Tohmatsu

Tim Richards

Partner

Chartered Accountants

Perth, 21 August 2020


Austal Limited | Shareholder information 139

Shareholder information

share register at 30 June 2020:

Distribution of shares

Twenty largest shareholders

Voting rights

All ordinary shares issued by Austal Limited carry one vote per share without restriction.

Number of % of Total Number of

Individual shareholding shares issued capital holders

1 - 1000 1,443,774 0.40% 3,246

1,001 - 5,000 7,687,271 2.16% 2,971

5,001 - 10,000 6,526,888 1.83% 862

10,001 - 100,000 19,419,213 5.44% 748

100,001 and over 321,631,343 90.17% 73

Total 356,708,489 100.00% 7,900

Number of % of Total Substantial

Rank Shareholder shares issued capital shareholder

1 HSBC Custody Nominees (Australia) Limited 109,222,966 30.62% Yes

2 J P Morgan Nominees Australia Pty Limited 75,729,127 21.23% Yes

3 Austro Pty Ltd 32,307,692 9.06% Yes

4 Citicorp Nominees Pty Limited 31,868,745 8.93% Yes

5 National Nominees Limited 27,102,862 7.60% Yes

6 BNP Paribas Nominees Pty Ltd 15,528,229 4.35%

7 Onyx (WA) Pty Ltd 5,600,000 1.57%

8 Sandhurst Trustees Ltd 2,168,506 0.61%

9 Mr Garry Heys + Mrs Dorothy Heys 2,044,670 0.57%

10 Mr William Robert Chambers 2,000,000 0.56%

11 Mossisberg Pty Ltd 1,501,577 0.42%

12 Mr David Singleton 1,222,721 0.34%

13 Warbont Nominees Pty Ltd 1,007,177 0.28%

14 Lavinia Shipping Limited 991,000 0.28%

15 Morgan Stanley Australia Securities (Nominee) Pty Limited 981,858 0.28%

16 CS Third Nominees Pty Limited 921,700 0.26%

17 Kenny Nominees (Nt) Pty Ltd 857,881 0.24%

18 Pacific Custodians Pty Limited 844,072 0.24%

19 Washington H Soul Pattinson and Company Limited 640,000 0.18%

20 AMP Life Limited 582,567 0.16%

Total 313,123,350 87.78%

140 Austal Limited | Corporate governance statement and ESG report

Corporate governance statement and ESG report

The Company has elected to post its Corporate Governance Statement and on its website in accordance with ASX Listing Rule 4.10.3 along with its Environmental, Social and Governance Report (ESG Report).

The Corporate Governance Statement and ESG Report can be found at the following URL: www.austal.com/corporategovernance.

Corporate directory

Directors


Mr John Rothwell Mr Giles Everist Mrs Sarah Adam-Gedge Mr Chris Indermaur

Executive Directors

Mr David Singleton

Auditor

Deloitte Touche Tohmatsu Brookfield Place, Tower 2 123 St Georges Terrace Perth 6000 Australia

Company Secretary

Mr Adrian Strang

Registered office

100 Clarence Beach Road Henderson 6166 Australia Telephone: +61 8 9410 1111

Share registry

Link Market Services Limited QV1 Building, Level 12 250 St Georges Terrace Perth 6000 Australia Telephone: +61 1300 554 474

ABN

73 009 250 266

http://www.austal.com/corporategovernance

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